26.4.2018   

EN

Official Journal of the European Union

L 107/1

(1)

By letter of 5 October 2007 a competitor of the Irish Airline Ryanair plc (hereinafter: ‘Ryanair’) on the European air passenger transport market, who requested not to have its identity disclosed, lodged a complaint with the Commission alleging that Ryanair has been granted unlawful State aid by the Federal State of Carinthia, the City of Klagenfurt, Kärnten Werbung Marketing & Innovationsmanagement GmbH (hereafter: ‘Kärnten Werbung’) and the Airport of Klagenfurt (hereinafter ‘KLU’) via its operating company Kärntner Flughafen Betriebsgesellschaft mbH (hereinafter ‘KFBG’).

(2)

By letter of 11 October 2007 the Commission forwarded the complaint to Austria and requested information. The Austrian authorities responded by letter dated 2 January 2008.

(3)

The Commission requested additional information from the Austrian authorities by letters dated 15 November 2010 and 24 March 2011. The Austrian authorities responded by letters dated 28 January 2011 and 30 May 2011.

(4)

On 8 April 2011 the Commission invited Ryanair to provide certain information. Ryanair submitted the information by letter dated 4 July 2011. On 15 July 2011 the Commission forwarded the submission of Ryanair to the Austrian authorities, which provided their comments by letter of 20 September 2011.

(5)

After having examined the information supplied by the Austrian authorities, the Commission decided on 22 February 2012 to open the investigation procedure laid down in Article 108(2) of the Treaty on the Functioning of the European Union (‘TFEU’). The decision to open the formal investigation procedure (hereinafter ‘the opening decision’) was transmitted to Austria on the same date and was subsequently published in the Official Journal of the European Union. The Commission invited interested parties to submit their comments on the measure (2).

(6)

By letter dated 13 March 2012 Austria requested the Commission to extend the deadline to submit its observations about the Commission's opening decision. The Commission granted an extension of the deadline by letter of 19 April 2012. Austria submitted its observations on 16 May, 11 June and 31 August 2012.

(7)

By letters dated 20 June 2012, 5 October 2012, 3 May 2013 and 28 May 2014 the Commission forwarded interested parties' observations to Austria.

(8)

By letter dated 24 February 2014 the Commission informed Austria and the interested parties to the procedure that the Commission guidelines on State aid to airports and airlines (3) (hereinafter ‘the 2014 Aviation Guidelines’) were adopted on 20 February 2014 and invited them to submit comments on the application of the new EU Guidelines on State aid to Airport and Airlines to this investigation. Austria replied by letter of 20 March 2014.

(9)

The 2014 Aviation Guidelines were published in the Official Journal of the European Union on 4 April 2014. They replaced the 2005 Community guidelines on financing of airports and start-up aid to airlines departing from regional airports (4) (hereinafter ‘the 2005 Aviation Guidelines’).

(10)

By letter of 28 May 2014 the Commission requested further information from Austria regarding a marketing contract between the KLU and Ryanair signed on 22 January 2002. The Commission had previously learned from this contract by a submission of an interested party (Ryanair). By letter of 11 June 2014 Austria replied to this request.

(11)

After having examined the information supplied by the Austrian authorities, the Commission decided on 23 July 2014 to extend the investigation procedure. The decision to extend the formal investigation procedure (5) (hereinafter ‘the extension decision’) was transmitted to Austria on the same date and was subsequently published in the Official Journal of the European Union. The Commission invited interested parties to submit their comments on the measure.

(12)

Austria submitted its observations on the measure which was the object of the extension decision by letter dated 20 August 2014. The Commission received comments from interested parties. It forwarded them to Austria, which was given the opportunity to react; its comments were received by letter dated 17 December 2014.

(13)

By letters dated 1 December 2014, 5 February 2015, 24 April 2015 and 11 December 2015 the Commission forwarded interested parties' observations to Austria.

(14)

The Commission requested additional information from the Austrian authorities by letters dated 15 December 2014, 13 January 2015, 5 February 2015, 19 March 2015 and 25 September 2015. The Austrian authorities responded by letters dated 28 January 2015, 12 February 2015, 31 March 2015, 14 April 2015 and 11 November 2015.

(15)

This case deals with several measures that concern KLU as well as different airlines operating at KLU:

(16)

KLU is located at the outskirts of the city of Klagenfurt, which is the capital of the Austrian Federal State Carinthia (Bundesland Kärnten). Carinthia is a mountainous region in the south of Austria.

(17)

KLU was founded in 1915 as a military air base. Soon after that it was used for both military and civil purposes and this dual utilisation continues until today.

(18)

KLU is owned and operated since 1939 by KFBG which is held by several shareholders. Until 2003 the shares were held by the Republic of Austria (60 %), the State of Carinthia (20 %) and Klagenfurt city (20 %). In April 2003 the State of Carinthia took over the shares of the Republic of Austria, committing itself to keep the airport open for military purposes. Since 2003 the shares were therefore held by the State of Carinthia (80 %) and Klagenfurt city (20 %). In November 2008 the 80 % share of the State of Carinthia in the Airport were transferred to Kärntner Landes- und Hypothekenbank-Holding.

(19)

The airport has a main runway of 2 720 metres, which remained unchanged since 2000. Its terminal has a maximum capacity of 600 000 passengers. The passenger numbers have evolved as follows:

Table 1

Traffic figures at KLU

(20)

KLU is located in Carinthia, the southernmost state of Austria. As Carinthia is situated within the Eastern Alps it is known for its mountains, such as the Hohe Tauern Range, Carnic Alps and Karawanken and tourism is one of the major industries. Due to this alpine situation, Carinthia has a continental climate with long harsh winters.

(21)

KLU is situated at the following distances/travelling time by car to other airports. It has to be noted however that these indications for travelling time can only be met under best conditions, and will often take longer due to blocked roads and congested tunnels because of adverse weather conditions and too much traffic volume for the tunnels.

(22)

Destinations Management GmbH (hereafter: ‘DMG’) is a 100 % subsidiary of KFBG. DMG is provider of different services to KLU in the aerospace sector, such as travel agency services, event manager and consultant to attract airlines to the destination of Klagenfurt.

(23)

Kärnten Werbung is owned by Kärntner Landes- und Hypothekenbank-Holding (until November 2008 by the State of Carinthia) (60 %), the Chamber of Economy of Carinthia (30 %) and the Chamber of Employees (10 %). The purpose of the company is marketing activities for the tourism in Carinthia. Kärnten Werbung is financed by its shareholders, i.e. by the Kärntner Landes- und Hypothekenbank-Holding, the Chamber of Economy of Carinthia and the Chamber of Employees. It is controlled by the supervisory board which is nominated by the shareholders.

(24)

Kärntner Landes- und Hypothekenbank-Holding (hereafter: ‘KLH’) was a legal person governed by public law and established in 1990 by the Kärntner Landesholding-Gesetz (KLH-G) (6). The KLH was a legal person sui generis and holder of special rights. KLH was not a corporation under commercial law. KLH was however registered in the Commercial Register under a company number. KLH also did not publish balance sheets or annual accounts, but rather, in accordance with § 28 KLH-G, made them available to the government of the State of Carinthia. KLH acted as owner company (holding), i.e. State assets agency for the shares which the State of Carinthia holds in the former regional mortgage bank of Carinthia (Kärntner Landes Hypothekenbank) and other companies, such as the Land Kärnten Beteiligungen GmbH, the Kärntner Vermögensverwaltungs GmbH et al. KLH owns 80 % of the shares of KFBG.

(25)

According to its statutes, the purpose of KLH was to acquire, hold, administer and divest assets, in particular shares in companies, and to found companies. KLH was to carry out a strategic holding policy for all its companies to guarantee synergy effects, clear competences and carry out a centralised controlling. KLH had to carry out its business in the interest of the State of Carinthia. The operative business was carried out by the companies themselves. For the direct and indirect financing and support of projects by KLH a special fund called ‘Zukunft Kärnten’ was established by the State of Carinthia. The core of the fund consisted of EUR 500 million.

(26)

The board of KLH was appointed by the supervisory board of KLH. The supervisory board on its part was appointed by the government of the State of Carinthia. It is stipulated in the statutes that the members of the supervisory board shall represent the proportions of the political parties represented in the government of the State of Carinthia. Moreover, the supervisory board had to agree with any investment decision of the board above the amount of EUR 50 000. According to § 5 of the statutes of KLH, KLH was under a constant supervision by the government of the State of Carinthia. The government of Carinthia had to ensure that all decisions of KLH were in the interest of the State of Carinthia.

(27)

LV is a 100 % subsidiary of Ryanair and is active as marketing company for Ryanair.

(28)

AMS is a 100 % subsidiary of Ryanair. Its main activity is to sell advertising space on the Ryanair website. AMS has the exclusive license to offer marketing services on the website www.ryanair.com of Ryanair.

(29)

In the period between 2000 and 2010 KLU received from its shareholders as well as the Federal Ministry for the Interior and the Federal Ministry of Finances financial contributions. These different contributions to KFBG and DMG are represented in the following table.

Table 2

Financial contributions to KFBG

(30)

The schedule of charges of KLU is approved every year by the Federal Ministry for Transport and consists of Part I ‘Tarifordnung’ and Part II ‘Entgeltordnung’. Part I deals with the following tariffs: landing fee (per turnaround), passenger fee (per departing passenger), parking fee (per turnaround) and infrastructure fee (airside: per turnaround, landside: per passenger). The infrastructure fee is for the use of the airport central infrastructure and applies when a ramp/traffic handling service is provided. It consists of the air side infrastructure tariff which depends on the maximum take-off weight (hereafter ‘MTOW’) of the aircraft and the number of seats and a landside infrastructure tariff per departing passenger.

(31)

Part II (‘Entgeltordnung’) deals with the ground handling services. The fees for ground handling services are divided into two groups: services which have to be paid for independently of the range of the use; traffic handling charge (‘THC’) and ramp handling charge (‘RHC’) and individual services which have to be paid only with respect to the individual use. The amount of the THC and RHC depends on the MTOW of the aircraft. The THC is between EUR 337 and 3 886, the RHC is between EUR 226 and 2 404.

(32)

In 2005 KFBG introduced an incentive scheme (hereinafter ‘2005 incentive scheme’) for airlines with and from destination of Klagenfurt airport with the objective to enhance the creation of new flight destinations (hereinafter ‘destinations incentive’), to intensify existing flight connections (hereinafter ‘frequency incentive’) and to strengthen and secure existing flight connections (hereinafter ‘passenger incentive’). The scheme entered into force 1 September 2005 and ended 31 December 2008. In December 2008 the incentive scheme was extended until 2013.

(33)

The destinations and frequency incentive scheme granted incentives as a percentage rebate on certain airport charges (landing fee, infrastructure fee airside, ramp handling charge) which are laid down in the schedule of charges of KLU.

(34)

The passenger incentive scheme was an absolute amount paid per passenger of a departing flight from KLU fixed for the whole duration of the scheme. The incentive was deducted from the same fees as for the destinations and frequency incentive. The amount was indicated as a maximum amount. If the flights were increased or decreased the amount was adapted respectively but not above the maximum amount.

(35)

A combination of the destinations and frequency incentive with the passenger incentive was possible insofar as all forms of incentives could be combined but not cumulated for the same passengers. This means that the passenger numbers on which are based the destinations and frequency incentives were deducted from the overall passenger number when calculating the passenger incentive.

(36)

The incentive scheme was published on the website of KLU and was open to all airlines operating on KLU but applied only for scheduled flights, charter flights were excluded. The application had to be based on a prior agreement between KFBG and the airline on the planned frequencies and routes.

(37)

The incentive was refunded by KFBG at the end of a calendar year. At that moment the airline had to prove the number of passengers and flights from and to the destination of KLU.

Table 3

Incentives at KLU since 2005

Table 4

Overview of the amounts of incentives paid to airlines at KLU since 2005

Table 5

Application of incentives since 2005

(38)

In November 2001 DMG opened a tender for a scheduled flight connection between London and Klagenfurt. The tender was published in the Official Journal of 14 November 2001, p. 219, and in the official procurement journal of the Federal Ministry of Economy and Labour. The tender offered a contract for a direct daily scheduled flight London-Klagenfurt and back for at least 100 000 passengers per year from a central London airport with a duration of 3 years and an option to extend for 5 years. As a reward DMG offered:

(39)

The tender foresaw also an alternative offer with 4 flights a week and 60 000 passengers from London In this case the reward offered was a marketing support of ATS 1 million (EUR 72 672,82) and a 97 % refunding of the turnaround fees.

(40)

The public tender did not result in any offer and was withdrawn consequently. In the following a negotiated procedure without previous publication was carried out and resulted in a contract with Ryanair.

(41)

On 22 January 2002 KFBG and Ryanair concluded an agreement which entered into force on 27 June 2002 for a period of 5 years with an automatic renewal for further 5 years provided that Ryanair fully complies with its obligations under that agreement.

(42)

Ryanair was obliged under the agreement to operate passenger air services between KLU and London-Stansted Airport (hereafter: ‘STN’) commencing around the date of entering into force of the Agreement utilising a B737 aircraft on at least a daily basis with low fares and 348 rotations per year or 87 rotations per calendar quarter.

(43)

According to the agreement, Ryanair pays KFBG an all-inclusive fee of EUR […] per rotation in respect of landing and take-off fees, lighting charges, noise and night fees, ramp and passenger handling, infrastructure charge, local Air Traffic Control and charges for the services at KLU.

(44)

Ryanair collects on the passenger tickets an amount of EUR […] per departing passenger as a passenger services charge for the Airport. Ryanair also collects on the passenger tickets an amount of EUR […] (fixed by the Austrian Government) per departing passenger as a security fee for the Airport.

(45)

Ryanair produces in conjunction with DMG a periodic marketing plan for the flight connections for KLU. Ryanair has complete discretion in the application of the marketing support received with the only condition that it has to link the appropriate tourist websites to Ryanair's website and to incorporate appropriate logos wherever feasible.

(46)

KFBG is obliged to provide airport terminal and handling services for the services of Ryanair (including free branding space at the ticketing and check-in desks and boarding gates), to provide public relations functions such as local press conferences to announce new destinations, to procure the payment by DMG to LV of an amount of EUR […] per year in respect of the daily rotation commencing on 27 June 2002, payable quarterly in advance at EUR […]. To the extent that this amount is not paid by DMG to LV, KFBG has to pay the shortfall to Ryanair.

(47)

On 22 January 2002 DMG and LV concluded an agreement which entered into force on the same date with a duration until 26 June 2007 with an automatic renewal for further 5 years provided that LV fully complied with its obligations under that agreement.

(48)

According to the agreement, DMG appoints LV to initiate marketing measures aimed at making the province of Carinthia better known in the English speaking world and to arrange for legally licensed air carriers of Ryanair to provide new scheduled passenger air services from locations within the United Kingdom and/or continental Europe to KLU using aircraft with a capacity of not less than 140 seats (‘the Services’).

(49)

The convened ‘Services’ should continue to be 348 rotations per annum (87 rotations per quarter) — the marketing agreement referred to the rotations as mentioned in the airport services agreement between KFBG and Ryanair. LV undertakes to procure the introduction and continuation of the ‘Services’ and to generate a promotional plan and web links to DMG's homepage and other promotion of promoting the ‘Services’ including links between tourist websites to LV's air operator client's websites.

(50)

DMG pays EUR […] per year in respect of the daily rotation payable quarterly in advance at a rate of EUR […] (this payment is also mentioned in the contract between KFBG and Ryanair of 22 January 2002). This amount is also mentioned in the contract between KFBG and Ryanair, there it is stipulated that KFBG has to ‘procure’ the payment of DMG to LV.

(51)

On 22 January 2002 DMG and AMS concluded an additional marketing agreement which entered into force the same date for duration of 5 years with a possible extension for additional 5 years.

(52)

According to this agreement, DMG appoints AMS to establish, on or before 1 May 2002, and operate two links on www.ryanair.com to websites chosen by DMG, which profile the attractions of the Federal State of Carinthia. AMS will provide additional services if the parties so decide according to Articles 5.1 and 5.2 of the agreement.

(53)

DMG pays for the described services of AMS EUR […] per annum.

(54)

This agreement is a side letter to the marketing agreement between DMG and LV of 22 January 2002 (the first marketing agreement) and was signed by both parties on 22 January 2002 and entered into force on the same day.

(55)

It was agreed between the parties that ‘in relation to the contract between LV and DMG dated 22 January 2002 a further marketing payment for additional and intensified marketing measures within the duration of contract, in the amount of EUR […] will be payable by DMG to LV on 1 May 2002.’

(56)

All 2002 agreements between KFBG, DMG, Ryanair, LV and AMS ended on 29 October 2005, when Ryanair stopped to operate the passenger air services between KLU and STN due to economic reasons.

(57)

On 23 August 2006 KFBG and Ryanair concluded an agreement which entered into force the same day for a 3-a-week-service operated from 19 December 2006 until 21 April 2007. The agreement was based on the published tariffs of KLU and the incentive scheme introduced in September 2005.

(58)

Ryanair was obliged to establish and operate STN-KLU-STN with a 3-a-week-service which would generate at least 8 000 departing passengers for the term of the contract. Ryanair was obliged to pay the official charges of KLU. The incentive scheme granted Ryanair an incentive of EUR 7,62 per departing passenger on the new scheduled service.

(59)

The Agreement contained the possibility to be extended for a period of 5 years from 22 April 2007 to 21 April 2012.

(60)

On 21 December 2006 DMG and AMS concluded a marketing agreement which entered into force the 28 February 2007. The Agreement was linked to Ryanair's commitment to operate a route between STN and KLU for the period 19 December 2006 to 21 April 2007 (ref. para 61).

(61)

AMS was obliged under the agreement to provide a package of marketing services per year with the value of EUR […] according to the current AMS rates. These marketing services included a link from www.ryanair.com to a website designated by DMG, a content designated by DMG on the Klagenfurt/Carinthia destination page and email offers advertising the region of Klagenfurt/Carinthia sent to subscribers of the website. Additional marketing services exceeding that amount could be decided by the two parties according to Article 5 of the agreement. The websites designated by DMG could not provide flights, car rental, accommodation and any services that in future might be offered by www.ryanair.com but they could present tourist attractions and business opportunities of Klagenfurt/Carinthia.

(62)

DMG was obliged to pay for the marketing services the EUR […] in monthly instalments on the basis of invoices.

(63)

The agreement contained the option to be extended for a period of 5 years from 22 April 2007 to 21 April 2012. The basis of the Agreement was a year-round, 3-a-week-service STN-KLU-STN. The yearly package of marketing in its content and rates were to be adapted amicably each year.

(64)

In November 2002 DMG opened a second tender for a scheduled flight connection between Klagenfurt and another European city (London and cities with less than 500 km distance being excluded). The tender was published in the Official Journal of the European Union of 11 December 2002, p. 240, and in the official procurement journal of the Austrian Federal Ministry of Economy and Labour. The tender offered a contract for a direct daily scheduled flight Klagenfurt — a European City and back with 348 flights (rotations) per year with duration of 5 years and an option to extend for 5 years. As a reward DMG offered:

(65)

The second public tender did not result in any offer and was withdrawn consequently. In the following a negotiated procedure without previous publication was carried out and resulted in an agreement with HLX.

(66)

According to the information submitted by Austria, the cooperation agreement between KFBG and HLX started on 30 August 2003 and continued until 31 March 2008. It was concluded in written form only by contracts signed on 24 May 2004 and 4 June 2004. The agreement included the possibility to be prolonged by both parties.

(67)

HLX was obliged to establish and operate Klagenfurt-Köln/Bonn with a 6-a-week-service, as well as Klagenfurt-Hannover with a 3-a-week-service. HLX was obliged to pay for these air services the official charges of KLU as set out in the schedule of charges of KLU.

(68)

HLX was also obliged to provide a package of marketing services for KLU, such as commercials for the new destinations in local, regional and national medias, as well as in the internet and with billboard advertising in the public. HLX was obliged to feature a positive presentation of KLU on its website as well as a direct link to the website of KLU.

(69)

KFBG was obliged to pay for the costs of initiating the new services and the marketing services connected with the new air service the one-off amount of EUR […]. In addition KFBG was obliged to pay for each of the new destinations a monthly amount for marketing services of EUR […] as of 1 October 2003 and a monthly amount of EUR […] as of 1 May 2004 until 31 March 2008.

(70)

A third tender was opened by DMG in December 2003 for a scheduled flight connection between Klagenfurt and another European city (London and cities with less than 500 km distance being excluded). The tender was published in the Official Journal of the European Union and in the official procurement journal of the Federal Ministry of Economy and Labour on 30 December 2003. The tender offered a contract for a direct daily scheduled flight Klagenfurt — a European City and return with 3-7 flights (rotations) per week with duration of 5 years. As a reward DMG offered:

(71)

The third public tender did not result in any offer and was withdrawn consequently. In the following a negotiation procedure without previous publication was carried out and resulted in an extension of the agreement with HLX: two additional destinations, namely Hamburg and Berlin, were added to the air services offered by HLX as of 1 May 2004.

(72)

The Austrian authorities explained that the amounts paid to HLX for marketing services corresponded approximately to the refunding of turnaround fees as foreseen in the second and third tender made by DMG in November 2002 and December 2003 (9). According to Austria the details of the agreement with HLX corresponded to the conditions of the second and third tenders made by KFBG.

(73)

In January 2007 HLX and another undertaking named ‘Hapag-Lloyd Flug’ were merged into the new undertaking TUIfly. TUIfly continued the air services of HLX. Following this merger, KFBG concluded a follow-up agreement with TUIfly on 10 December 2008. This agreement entered into force on 1 April 2008 and expired automatically on 31 March 2013.

(74)

According to this agreement Tuifly was obliged to operate in the International Air Transport Association (hereinafter ‘IATA’) summer flight schedule 2008 Klagenfurt-Köln with a 7-a-week-service, Klagenfurt-Hannover with a 2-a-week-service, Klagenfurt-Berlin with a 3-a-week-service and Klagenfurt-Hamburg with a 2-a-week-service which would generate at least 50 000 departing passengers. In the IATA winter flight schedule 2008/2009 Tuifly was obliged to operate Klagenfurt-Köln with a 7-a-week-service, Klagenfurt-Hannover with a 4-a-week-service, Klagenfurt-Berlin with a 4-a-week-service and Klagenfurt-Hamburg with a 4-a-week-service which would generate at least 40 000 departing passengers.

(75)

Tuifly was also obliged under the agreement to provide a comprehensive package of marketing services for KLU and the region of Carinthia. These marketing services included the presentation of Klagenfurt as tourist destination in two monthly newsletters, on a special last-minute-website, on the starting website of Tuifly, on the website for services to KLU, in on-board cards and on-board magazines, in the respective summer and winter schedule of the Tuifly services, in a special video in the on-board TV programme, aircraft branding and various press events.

(76)

KFBG was obliged to pay for these marketing services a yearly amount of EUR […] as well as the one-off amount of EUR […] for the aircraft branding.

(77)

Starting with the IATA winter flight schedule 2009/2010 Air Berlin took over the city flights network of Tuifly. Following this takeover, KFBG and Tuifly signed on 28 October 2009 a contract to terminate their agreement of 10 December 2008 with effect on 25 October 2009. DMG concluded a follow-up agreement with Air Berlin for the period 25 October 2009 to 31 March 2013. This agreement was signed on different dates, i.e. on 8 July 2010, 13 October 2010 and 25 October 2010. The agreement included the possibility to be prolonged by both parties.

(78)

According to this agreement Air Berlin was obliged to operate in the IATA winter flight schedule 2009/2010 Klagenfurt-Köln with a 4-7-a-week-service (a minimum of 4 services and a maximum of 7 services per week to be decided by Air Berlin), Klagenfurt-Berlin with a 5-6-a-week-service, Klagenfurt-Hannover with a 2-a-week-service and Klagenfurt-Hamburg with a 5-6-a-week-service which would generate in that summer flight schedule at least 31 000 departing passengers in total. Air Berlin was obliged to operate in the IATA summer flight schedule 2010 Klagenfurt-Köln with a 5-6-a-week-service, Klagenfurt-Berlin with a 4-5-a-week-service, Klagenfurt-Hannover with a 2-a-week-service and Klagenfurt-Hamburg with a 3-4-a-week-service which would generate in that winter flight schedule at least 42 000 departing passengers in total.

(79)

Air Berlin was obliged to operate in the IATA winter flight schedule 2010/2011 Klagenfurt-Düsseldorf with a 2-3-a-week-service, Klagenfurt-Berlin with a 3-a-week-service, and Klagenfurt-Hamburg with a 2-3-a-week-service which would generate at least 19 000 departing passengers. Air Berlin was obliged to operate in the IATA summer flight schedule 2011 Klagenfurt-Düsseldorf with a 2-3-a-week-service, Klagenfurt-Berlin with a 3-4-a-week-service, and Klagenfurt-Hamburg with a 2-a-week-service which would generate at least 28 000 departing passengers.

(80)

Air Berlin was also obliged under the agreement to provide a comprehensive package of marketing services for KLU and the region of Carinthia such as the presentation of Klagenfurt on the main website of Air Berlin, in the German and Dutch newsletters, at the web-check in, the boarding pass receipts, as screensavers in various print and TV media on board of the aircrafts and at regional press events.

(81)

DMG was obliged to pay for these marketing services for the flight schedule 2009/2010 the amount of EUR […], for the flight schedule 2010/2011 the amount of EUR […].

(82)

Since 1 October 2003 AUA unilaterally reduced its payments for the turnaround fees due at that time at KLU. On 17 November 2003 KFBG brought against AUA a civil law action at the local district court concerning the airport fees still due. AUA submitted on 7 January 2004 a defence plea in this proceeding. In addition AUA filed on 17 October 2004 an application at the national cartel court under national competition law because of abuse of a dominant position by KFBG.

(83)

On 20 October 2005 KFBG and AUA signed a settlement agreement concerning the period of 1 October 2003 until 20 October 2005. In this settlement agreement the two parties agreed to end the two litigations at the local district court and the national cartel court.

(84)

AUA agreed to pay EUR […] to KFBG.

(85)

Both parties agreed that the incentive scheme of KFBG of 1 September 2005 became part of the settlement agreement and was to be applied for AUA as of 1 October 2003.

(86)

In its opening decision and extension decision, the Commission raised doubts regarding the following measures:

(87)

The Commission expressed doubts whether public payments made by the shareholders of KFBG as well as the Federal Ministry for the Interior and the Federal Ministry of Finances for the financing of KLU in the period between 2000 and 2010 constitute State aid and, if this is the case, whether this State aid is compatible with the internal market.

(88)

The Commission raised doubts whether the discounted airport charges under the incentive scheme of 2005 amounted to State aid and, if so, whether this State aid is compatible with the internal market.

(89)

In its opening decision, the Commission expressed doubts whether Ryanair and its subsidiary LV benefitted from State aid by concluding the agreements in 2002 with KFBG and DMG, and, if so, whether this State aid is compatible with the internal market.

(90)

In its extension decision, the Commission expressed doubts whether two additional contracts concluded in 2002 between DMG and AMS as well as LV, that have to be taken into consideration for an accurate analysis of all the contracts concluded in 2002, constitute State aid, and, if this is the case, whether this State aid is compatible with the internal market.

(91)

The Commission also raised doubts in its opening decision whether Ryanair and its subsidiary AMS benefitted from State aid by concluding the agreements in 2006 with KFBG and DMG, and, if this is the case, whether this State aid is compatible with the internal market.

(92)

The Commission raised doubts whether HLX/Tuifly benefitted from State aid by concluding agreements with KFBG, and, if so, whether this State aid is compatible with the internal market.

(93)

The Commission also expressed doubts whether Air Berlin benefitted from State aid by concluding agreements with KFBG, and, if so, whether this State aid is compatible with the internal market.

(94)

The Commission raised doubts whether the settlement agreement between KFBG and AUA of 20 October 2005 constitutes State aid, and, if this is the case, whether this State aid is compatible with the internal market.

(95)

The Austrian authorities submitted that KFBG in general did not prepare ex ante cost-benefit analyses before concluding agreements with the airlines nor before introducing the incentive scheme in 2005.

(96)

In order to enable the Commission to assess the measures under investigation, Austria submitted reconstructed ex ante cost-benefit analyses for all agreements concluded between KFBG/DMG and various airlines as well as for the incentive scheme of 2005.

(97)

For the reconstruction of these analyses the Austrian authorities used only data and information available at moment of concluding the agreements and the incentive scheme and provided for the duration of each agreement estimated values.

(98)

The Austrian authorities first recalled the great public interest in operating KLU in Carinthia. KLU is not only an important link between the region of Carinthia and other regions and Member States. KLU also has to be operated because of responsibilities of public administration and military obligations. The State of Carinthia is obliged to operate KLU for military operations of the Republic of Austria.

(99)

Secondly the Austrian authorities declared that it is not possible to substitute KLU with other airports, as a journey to other alternative airports (Ljubljana, Maribor, Trieste or Graz) through the alpine State of Carinthia can take with adverse weather conditions easily much more time than the same distance in non-alpine regions. The catchment area of an airport in an alpine region such as Klagenfurt should therefore be adjusted accordingly.

(100)

Thirdly Austria submitted that the financing of KLU would have been profitable during the last 20 years if the costs of contracts with various airlines were not taken into account. An analysis of the costs of operating KLU should be undertaken by using an incremental cost approach.

(101)

Austria agreed that all of the measures under investigation have been granted through State resources and are imputable to Austria.

(102)

However, Austria fails to see the economic advantage received by KFBG through the financing of its shareholder. Austria argues that the amounts paid by the shareholders only compensated KFBG for the costs stemming from the marketing contracts with different airlines and the benefit of these marketing activities were not only for KLU, but also for the city of Klagenfurt and the State of Carinthia. Some of the costs of KLU for public administrative obligations should normally be borne by the State of Carinthia and could therefore be paid by the State of Carinthia or Federal Ministries.

(103)

Moreover, Austria submitted that the operation of KLU should be qualified as a service of general economic interest (‘SGEI’), as there is a public interest and obligation for the State of Carinthia to operate KLU, given the need to guarantee accessibility of the region of Carinthia.

(104)

As regards the agreements between KLU and the airlines and the incentive scheme, Austria submitted the following comments. Austria fails to see the economic advantage for the different airlines operating at KLU, as some of the contracts contained the conditions of prior public tenders of KLU and therefore seemed to have respected market conditions. Equally the incentive scheme of 2005 was in line with market conditions.

(105)

Regarding the selectivity of the measures under investigation, Austria argues that all airlines could participate at the prior public tenders, so that the subsequent contract with individual airlines could not be qualified as being selective. Moreover, as KLU is not substitutable with any other airport, there is no distortion of competition or effect on trade given.

(106)

The Austrian authorities have not carried out any independent evaluation of the outcome of the marketing activities provided under the various marketing agreements, but claim that there is a positive effect in the passenger numbers of KLU resulting from the permanent cooperation and the success of the flight connections

(107)

With regard to the settlement agreement concluded between KFBG and AUA, Austria argues that the conclusion of that agreement reflected as well a measure motivated only by considerations of a private economic operator.

(108)

Concerning the incentive scheme, the Austrian authorities submitted that KLU acted like a private economic operator when initiating the incentive scheme at KLU. The reductions of airport charges offered in the incentive scheme reflected market conditions.

(109)

AUA, Lufthansa and Germanwings submitted their comments in two common submissions. They claimed in their submissions that the opening decision included several legal faults; a lack of reasoning for the imputability to the state and the participation of public authorities, a lack of reasoning for the market economic operator test (‘MEO test’), an overly long period from the submission of a complaint in 2007 until the opening of the procedure on 22 February 2012.

(110)

In addition the three airlines believed that the airport charges of KLU fulfilled the conditions of the MEO test. Concerning the financing of the airport the three airlines claim that this should not be subject to the State aid control, as they offered air services that improved the connection of the region of Carinthia with other regions and Member States. Concerning the profitability of KLU the three airlines commented that KLU could have been operated with profit without the reductions of airport charges for certain airlines and submitted their estimations with regard to the overall reductions of which certain other airlines profited.

(111)

AUA, Lufthansa and Germanwings stated that the incentive scheme of KLU could not be compared to airports such as Frankfurt/Hahn or Lübeck (as commented by Austria), as these airports are marked by the fact that they are fitted to meet the needs of Ryanair. Ryanair is the predominant airline at these airports, which is not the case for KLU. The three airlines also explained their views on the calculation of the costs of the airport.

(112)

Ryanair objects against the decision of the Commission to initiate the formal investigation procedure as regards the 2002 and 2006 agreements with KLU. Ryanair stated that these agreements complied with the market economy investor principle, and hence did not involve State aid.

(113)

Ryanair essentially argues that no advantage has been conferred to it since the agreements reflect normal market conditions.

(114)

Concerning the issue of marketing support, Ryanair argued that the discounts granted by KLU were in line with industry practice as many privately or publicly held airports (10) applied the same or greater level of discounts for new destinations.

(115)

Furthermore, Ryanair points out that the Commission seemed to apply a wrong cost-based test, as the costs for infrastructure and fixed operating costs should be considered sunk costs, and it seemed rational for KLU as a private investor to price at levels corresponding to the marginal costs.

(116)

Ryanair contests that it benefitted from a selective advantage through discounts for airport charges at KLU. Ryanair received access to the infrastructures of KLU in a non-discriminatory way, as the services were publicly tendered and no other airline was interested, nor was any other airline rejected. Ryanair received the discounts in recognition of the significant commercial risk that Ryanair took when establishing scheduled operation to an airport that was unknown at the time.

(117)

Concerning the contracts concluded with AMS Ryanair strongly objects to a joint assessment of Ryanair's separate agreements with KFBG together with the marketing agreements concluded with AMS. The conclusion of a marketing agreement with AMS is not a condition for the operation of routes by Ryanair to and from KLU.

(118)

Ryanair stated that the Commission has ignored the value of marketing services on Ryanair's website as one of the most popular travel websites in the world.

(119)

According to Ryanair, the involvement and imputability of Austrian authorities at the measures under review involving Ryanair or AMS is not demonstrated.

(120)

Additionally Ryanair criticises the following shortcomings. The costs related to security should be outside the scope of an airport's economic activity. As none of the arrangements between Ryanair and KLU involved State aid, the applicability of the 2005 Aviation Guidelines is irrelevant. A lack of business plan does not exclude that a public body has acted as a commercial actor. The definition of the catchment area of KLU is incoherent with other State aid cases.

(121)

Lastly, Ryanair submitted a series of notes prepared by the consultancy firm Oxera, as well as an analysis prepared by Professor Damien P. McLoughlin.

(122)

Ryanair has appointed Oxera to carry out an assessment whether the agreements between Ryanair and the fees paid by Ryanair at KLU conform to the market economy investor principle. Not included in the assessment is the Marketing Services Agreement between DMG and AMS of 21 December 2006.

(123)

Oxera carries out two analyses: a comparator analysis and a profitability analysis. Oxera identifies […] and […] airports as comparator for KLU, based on a range of characteristics. Oxera compares the charges paid by Ryanair in these airports deducting the marketing support payments Ryanair receives under the 2002 agreement with DMG, but not the payments it receives under the 2006 Marketing Services Agreement. It compares the charges paid per turnaround and per passenger and comes to the conclusion that the charges at KLU have always been higher than at the two other airports.

(124)

Oxera's profitability analysis is an ex ante assessment based on incremental costs and revenues and a single till approach (12) and only concerns the 2002 agreements. It comes to the conclusion that the 2002 agreements were profitable for the airport and had a positive net present value.

(125)

The analysis focuses on the Airport Service Agreement between KFBG and Ryanair for the period between 2002 and 2006 as well as the marketing arrangements between DMG and LV, covering the period from 27 June 2002 to 27 June 2007. The analysis undertaken by Oxera does not consider the agreements between DMG and AMS.

(126)

Oxera has compared the overall charges paid by the airline at KLU with the respective charges paid at five comparator airports between 2002/2003 and 2010/2011. In particular, the charges have been expressed in two ways, on a charge per passenger and on a charge per turnaround basis, and initially aggregated into a measure of total charges. Total charges have subsequently been converted into charges per turnaround or charges per passenger, to enable the comparison across the six airports.

(127)

The results show that the overall level of charges paid by Ryanair at KLU is on average approximately five times higher than the comparable level of charges paid by the airline over the period under investigation at the comparator airports. It is understood that this is due to the higher prices typically charged by Austrian airports. This suggests that the charges paid by Ryanair at KLU are compatible with a level of charges that would have been offered to Ryanair by an airport-owning market economy investor in similar circumstances. The arrangements analysed in this report are therefore consistent with the MEIP.

(128)

Oxera believes that the Commission's approach of only accepting comparator airports in the same catchment area as the airport under investigation is flawed.

(129)

Oxera argues that market benchmark prices obtained from comparator airports are not polluted by State aid given to surrounding airports. Therefore, it is possible to robustly estimate a market benchmark for the MEO tests.

(130)

Oxera argues that this is because:

(131)

MEO airports will not set prices below incremental cost.

(132)

Oxera argues that the profitability analysis undertaken by Oxera in its reports submitted to the Commission follows the principles that would be adopted by a rational private sector investor and reflects the approach apparent from Commission precedents.

(133)

The principles underlying the profitability analysis are:

(134)

The paper aims to set out the commercial logic underlying regional airports' decisions to buy advertising on ryanair.com from AMS.

(135)

The paper argues that there are a large number of very strong, well known, and habitually used airports. Weaker competitors must overcome static buying behaviour of consumers to grow their business. Smaller regional airports need to find a way to consistently communicate their brand message to as wide an audience as possible. Traditional forms of marketing communication require expenditure beyond their resources.

(136)

This note presents the results from comparing prices set by AMS for advertising on ryanair.com, with rate card (13) prices for similar advertising services of other European travel websites. The objective of this analysis is to provide an independent assessment of whether the price set by AMS for its services is in line with the market price.

(137)

The analysis has been conducted for 2004 and 2005, when the AMS rate card was first introduced, and based on the rate card of November 2013. In both cases, AMS rates have been compared with a sample of website advertising prices. Only advertisements placed on the homepage of each website have been considered.

(138)

The results of the analysis demonstrate that AMS rate card priced for advertising space on ryanair.com are, in both cases, below or in line with the rate card prices. Therefore, the results provide evidence that rate card prices set by AMS are market conforming and meet the MEO test.

(139)

Oxera points out that these conclusions are in line with the earlier findings from Ryanair's expert marketing advisers, Mindshare (2004) and Zenobie Conseil (2011).

(140)

Ryanair submitted further reports by its consultant Oxera. In these reports, Oxera discusses the principles which, according to the airline, should be taken into account as part of the MEO test in the profitability analysis of, on the one hand, airport services agreements between Ryanair and airports and, on the other hand, the marketing services agreements between AMS and the same airports. Ryanair emphasises that those reports do not in any way change its position presented earlier that the airport services agreements and the marketing services agreements should be analysed under separate MEO tests.

(141)

The reports indicate that the profits generated by AMS should be included as revenues in a joint analysis regarding profitability while the expenses of AMS would have to be incorporated in the costs. To do this, the reports suggest the application of a cash-flow-based methodology to the joint profitability analysis, meaning that the expenditure by airports on AMS could be treated as incremental operating expenses.

(142)

The reports emphasise that marketing activities contribute to the creation and support of the brand's value, which helps to generate effects and benefits not only for the duration of the contract, but also after its termination. This would especially be the case if, due to the fact that Ryanair has concluded an agreement with this airport, other airlines establish themselves at the airport, which will in turn attract more shops to install themselves there and therefore bring in more non aeronautical revenues for the airport. According to Ryanair, if the Commission proceeds to undertake a joint analysis of profitability, those benefits have to be taken into account by treating the expenses of AMS as incremental operating costs, net of AMS payments.

(143)

Furthermore, Ryanair is of the opinion that a terminal value has to be included in the projected incremental profits at the end of the airport services agreement in order to take into account the value generated after the termination of the agreement. The terminal value could be adapted on the basis of a ‘renewal’-probability, measuring the expectation that profits will persist after the termination of the agreement with Ryanair or if similar conditions are agreed with other airlines. Ryanair considered that it would then be possible to calculate a lower limit for benefits generated jointly by the agreement with AMS and the airport services agreement, reflecting the uncertainties of incremental profits after the termination of the airport services agreement.

(144)

To supplement this approach, the reports present a synthesis of the results of studies on the effects of marketing on the value of a brand. Those studies recognise that marketing can support the value of a brand and can help to build a customer base. According to the reports, in the case of an airport, marketing on ryanair.com increases the visibility of the brand in particular. The reports moreover state that smaller regional airports wishing to increase their air traffic can therefore especially increase the value of their brand by concluding marketing services agreements with AMS.

(145)

The reports lastly indicate that a cash-flow-based approach is to be preferred over a capitalisation approach, in which the costs of marketing services provided by AMS would be treated as capital expenditure on an intangible asset (that is, the value of the brand). The capitalisation approach would only take into account the proportion of marketing expenditure that is attributable to the intangible assets of an airport. The marketing expenses would be treated as capital expenditure in an intangible asset, and then depreciated for the duration of the contract, taking into consideration a residual value at the foreseen termination of the airport services agreement. This approach would not take into account the incremental profits which the conclusion of the airport services agreement with Ryanair would bring in and it is also difficult to calculate the value of the intangible asset due to the expenses of the brand and the time period of use of the asset. The cash-flow method is more appropriate than a capitalisation approach, since the latter would not capture the positive benefits to the airport that are expected to arise as a result of signing the airport services agreement with Ryanair.

(146)

The note discusses how airport infrastructure investment costs should be allocated to airline agreements, in the circumstances where it is appropriate to treat such costs as relevant to an incremental profitability assessment of an airline agreement, when applying the market economy operator principle (MEOP).

(147)

Oxera states that the appropriate way to allocate investment costs is in relation to the expected share of capacity represented by a given airline agreement. Thus, the consultancy company highlights the critical difference of measuring utilisation with respect to capacity, by reporting the cases of Alghero, Västerås, Reus and Girona.

(148)

This report sets out how to empirically test whether AMS Agreements have wider benefits in terms of enhancing an airport's brand value and generating network externalities.

(149)

Oxera has underlined that the Commission has so far never concluded through an empirical analysis that the only benefits of advertising on ryanair.com are to increase levels of Ryanair traffic.

(150)

Oxera discusses the possible wider benefits of the AMS agreements in light of the qualitative evidence provided by the Alghero Airport. In fact, it is understood that the increase in levels of non-Ryanair traffic operating from Alghero Airport is thought to be at least partly due to the benefits of advertising on ryanair.com. Oxera states that it is therefore plausible that advertising on ryanair.com could have a wider long-term impact on traffic levels at airports, beyond increasing levels of Ryanair traffic.

(151)

However, the consultancy firm recognises that, due to information asymmetry, it is not possible to appropriately control for all the changes happening in the market at the same time. Oxera therefore highlights the need for a more robust analysis of the long-term impact of advertising on ryanair.com on traffic at the airports.

(152)

Oxera suggests different statistical approaches that could be followed by the Commission to examine the impact of advertising on ryanair.com on both non-Ryanair and Ryanair traffic at airports.

(153)

Oxera outlines that, if the empirical analysis demonstrates that there are wider benefits of advertising on ryanair.com, it would be important to account for these benefits appropriately within the Airport Services Agreement and the AMS ex ante profitability analysis under the Commission's approach. As a suggestion, the benefits could be included through the incorporation of the terminal value within the profitability analysis to reflect the value created by marketing activities.

(154)

The report analyses the expected profitability of the 2006 Airport Services Agreement on an ex ante basis. The document also presents sensitivity checks on the results from the 2011 MEOP Report regarding the expected profitability of the 2002 Airport Services Agreement.

(155)

Oxera has examined the expected profitability of each agreement under several scenarios around the base case. Oxera affirms that the base case aims to reflect Klagenfurt's assumptions in so far as these are verified by information from the airport, at the time of signing the Airport Services Agreements.

(156)

The expected profitability of each agreement has been measured by Oxera with the Net Present Value (NPV) methodology. The NPVs of each of the agreements were expected to be positive, thus the results from the profitability analysis indicate that the 2002 Airport Services Agreement and the 2006 Airport Services Agreement were sufficiently profitable such that an MEO investor would have been likely to offer similar terms.

(157)

The analysis of the expected profitability of the 2002 Airport Services Agreement presented in the report demonstrates that the overall conclusions from Oxera's 2011 report are robust to a number of sensitivity checks. These sensitivity checks include changes to the discount rate, incremental costs, non-aeronautical revenues and investment costs.

(158)

Combined with the results from the comparator analysis, the provided evidence shows that the arrangements are in line with the MEOP. Furthermore the arrangements at Klagenfurt appear to be market-conform, even under a number of sensitivities regarding the assumptions underlying the analysis. The evidence indicates that, under similar circumstances, a MEO investor would have found it profitable to have offered similar arrangements to those agreed between Ryanair and KLU.

(159)

Finally, Oxera refers to the cost-benefit analysis undertaken by the Austrian Authorities — covering the period from 27 June 2002 to 29 October 2005 — and claims that the analysis should not be relied on for assessing the compatibility with the MEOP since; (i) the analysis appears to model the conditions of the public tender for the operation of a direct route between Klagenfurt and London issued by DMG in November 2011, rather than the conditions in the 2002 Airport Services Agreement; (ii) the analysis does not appear to be on a fully ex ante basis, as it covers only the period during which Ryanair actually operated at the airport, rather the term specified in the 2002 Airport Services Agreement; and (iii) the implied aeronautical charges from the cost-benefit analysis submitted by the Austrian Authorities are significantly lower than those specified in the 2002 Airport Services Agreement.

(160)

The note explains why comparator analysis should be relied on in MEOP assessments of airport-airline deals, at least as a cross-check of the results from the profitability analysis. In fact, Oxera highlights that, in line with the approach advocated by the Commission in its notion of aid notice (14) and in other sectors (e.g. sea ports sector), comparator analysis should play an important role in MEOP assessments of airport-airline deals.

(161)

This is particularly the case when no assessment of the efficiency of the airport's costs is undertaken as part of the profitability analysis. In fact, as a market economy operator would be expected to manage their costs efficiently, in order for the MEOP assessment to deliver a robust conclusion, it is important to examine the efficiency of the airport's costs.

(162)

Furthermore, Oxera argues that it is possible for an airline to pay the same level of charges at two airports with similar characteristics. However, if one of the airports is not efficient, it could be concluded that the airport-airline agreement is not in line with the MEOP.

(163)

Oxera underlines that, when signing deals with the airport, Ryanair is not in a position to be able to observe the efficiency of the airport's costs, while the airport can assess whether a deal is likely to be profitable.

(164)

In conclusion, it is understood that the current approach of the Commission to assess the compatibility of airport-airline deals with the MEOP, provides Ryanair with insufficient legal certainty when signing deals with airports.

(165)

The note examines the impact of undertaking a joint Airport Services Agreement and AMS comparator analysis at KLU, in light with the Commission's approach. Oxera underlines that the analysis does not prejudices Ryanair's position of treating the Airport Services Agreements and AMS agreements separately.

(166)

The analysis has been based on the same set of comparator airports as in Oxera's 2012 report at KLU. The stability of the ownership and funding structure of the airports has been checked in order to ensure the accuracy of the comparison.

(167)

Over the period under consideration, net charges paid by Ryanair at KLU net of marketing payments received by Ryanair and AMS have been higher than average net charges at the comparator airports, on both a per departing passenger and a per turnaround basis. This implies that a market economy operator would have been likely to have offered similar arrangements to Ryanair.

(168)

The results from the joint Airport Services Agreement and AMS comparator analysis are therefore consistent with the interpretation that the arrangements between Ryanair, AMS and KLU were in line with the MEOP test and with the findings from Oxera's 2012 report.

(169)

In this report, Oxera examined the impact of Ryanair's operations on airports' non-aeronautical revenues, on a per passenger basis. Oxera considered that the start of Ryanair's operations had a significant positive impact on the level of per passenger non-aeronautical revenues of the airport. On this basis, Oxera claimed that the approach used to date in its MEOP profitability analysis as well as in the Commission's analysis (15) were conservative, as they did not include this increase in the airport revenues.

(170)

Oxera undertook an empirical analysis using a sample of 57 European airports meant to be as similar as possible to the airports under State aid investigation. Oxera found that the start of Ryanair's operations (16) in 29 of these airports led to an increase of around 12,0-13,7 % in non-aeronautical revenues per departing passenger in real prices (over and above inflation), this effect being statistically significant. According to Oxera, this was likely to be due to Ryanair passengers spending more than passengers from other airlines, partly as a result of limited catering facilities provided on-board low-cost carriers, and/or as a result of the start of Ryanair's operations resulting in the development of the terminal — for example, by attracting additional retail outlets.

(171)

Oxera also found that this effect held for low-cost carriers more generally. Oxera suggested that, due to the growth in the low-cost carrier industry with strong brands that carried significant levels of passenger traffic, the start of a low-cost carrier's operations at an airport could result in significant development of the airport and hence higher non-aeronautical revenues on a per-passenger basis. Based on the sample of airports considered, Oxera stated that the start of operations by full-fare carriers on the contrary did not have a significant impact on airports' non-aeronautical per passenger revenues.

(172)

According to Oxera, these results highlighted the conservative nature of the approach used to date in its MEOP profitability analysis as well as in the Commission's analysis. These analyses did not assume any accelerated growth in airports' non-aeronautical revenues on a per passenger basis and hence did not capture the wider benefits of Ryanair's operations from airports, but only uprated estimates of non-aeronautical revenues per departing passenger by the much lower rate of inflation. Oxera therefore expected its MEOP analysis and the Commission's analysis to underestimate the expected profitability of Ryanair's arrangements at the airport.

(173)

AMS submitted the following comments.

(174)

AMS claims that the Commission should not treat Ryanair and AMS as a single entity and the Marketing Services Agreements between AMS and DMG as a complement to the agreement between the Airport and Ryanair. AMS offers marketing services that are justified by their own separate purpose, priced at their market value and negotiated and concluded separately from Ryanair's agreements with the same airports.

(175)

Furthermore, Ryanair's decision to engage an intermediary to sell advertising space on its website would not be unusual. AMS has been successful in promoting and selling advertising space to numerous companies throughout Europe, both private and public.

(176)

Ryanair's website presents particularly desirable characteristics for marketing: it is one of the most popular travel websites in the world; the average duration of each visit to Ryanair's website is extremely long; advertising for an airport on the Ryanair website uniquely targets potential passengers to that airport, ensuring that very little or no advertising spend is wasted, contrary to advertising in newspapers, radio, TV and other less focused media targeted at the general public.

(177)

AMS concludes marketing agreements with both public and private airports, tourism bodies, car rental groups, hotel reservation websites, insurance companies and telecommunications service providers.

(178)

The rates at which advertising space is provided by AMS, and the volumes in which it is acquired, do not discriminate between public and private advertisers. Thus, no State aid can arise from AMS's arrangements with public airports or their subsidiaries. AMS has concluded with several privately owned or privately controlled airports (such as […] and […]) as well as other private parties agreements on similar, non-discriminatory, terms.

(179)

Concerning the commercial interest that an Airport would have to advertise on ryanair.com, AMS criticises the conclusion drawn by the Commission in the opening decision, as there is no legal basis to question the commercial rationale of DMG, as well as the Airport to advertise on Ryanair's website, in circumstances where AMS offers services at a market price.

(180)

AMS presented several reasons which would justify DMG purchasing marketing services from AMS to advertise on ryanair.com, which are summarised in what follows.

(181)

First, advertising on Ryanair's website is an investment in brand recognition. Airport managers of peripheral airports face significant challenges in getting their ‘brand’ recognised by passengers, airlines and non-aeronautical commercial managers, all of whom constitute potential sources of income for airports. Increased brand recognition can benefit the airports in a number of mutually inclusive and complementary ways, notably it may attract: (i) inbound passengers from the airline on whose site the airport is advertising; (ii) potential customers browsing one airline's website on which an airport is advertising to fly to that airport on another airline that has routes to the airport; (iii) another airline to fly to that airport; and (iv) commercial managers (such as, airport retail chain stores).

(182)

Second, advertising on Ryanair's website increases the proportion of inbound passengers. There is a trend among airports towards generating almost half of their revenue from non-aeronautical operations. From a regional airport's perspective, inbound passengers arriving to, and then departing from, the airport are much more likely to generate non-aeronautical income for the airport than local passengers using the airport to fly to foreign destinations.

(183)

Third, marketing and advertising on the website of all airlines has become a mainstream practice. Ryanair.com has exceptional value as a marketing venue for a wide range of travel-related products and services. Nevertheless, even if Ryanair has been a pioneer in this field, it would be erroneous to conclude that airports do not publicise themselves on other airline websites.

(184)

AMS' services are claimed to be priced at their market value. To substantiate this argument, AMS alleges that (i) the fact that a number of non-airport private customers from different industries, such as […], purchase marketing services from AMS is, by itself, sufficient to demonstrate that AMS's prices are real market prices, (ii) the decision of the Tribunal Administrative of Marseille (17) and the Bratislava case (18), draw attention to the value of AMS' marketing products and the advantages that the counterpart can gain while entering into such arrangements and (iii) the prices charged by AMS are based on objective criteria (19) and transparently provided on its website (20).

(185)

AMS also mentions the report of Zenobie Conseil and a study from an independent consultancy firm submitted to the Commission, in order to clarify that AMS' services are neither valueless nor overpriced, as implied by the Commission.

(186)

AMS points out that the opening decision did not establish that the decisions of DMG are imputable to the State, since the Commission simply relies on an organic criterion of ultimate State ownership borrowed from its analysis of the agreement with LV (itself based on an analogy with KFBG's decisions). AMS therefore asks the Commission to provide a more robust examination.

(187)

Regarding the first and second submission of the three airlines from 23 July 2012 and 18 September 2012, the Austrian authorities state that they were in contact with KFBG and Lufthansa only with respect to legibility of certain tables in the documents under investigation.

(188)

Regarding the argument that there is no State aid, Austria refers to its submission from 15 May 2012. Austria particularly agrees with Lufthansa's argumentation regarding the legal assessment of rebates.

(189)

With regard to the schedule of charges covered by the Austrian authorities in its first submission from 2008, Austria reiterates that its statement merely pointed at the existence of schedules of charges at other airports. Airports Frankfurt/Hahn and Lübeck are in fact not comparable with KLU, considering their different economic structure.

(190)

Concerning the claimed ‘sham tender’, Austria states that the authorities in Carinthia were planning a call for tender for the introduction of a route connecting London and Klagenfurt. In particular, the tender concerned a generic flight to London. Austria affirms that there is no evidence of a limitation of the requested services for Stansted or for any other London airport.

(191)

In addition, Austria recalls that it is possible to initiate a tender, even if this is not a legal obligation. Therefore, the argument that a tender was not strictly necessary is without substance. Austria further recalls the economic function of tenders. A tender creates transparency with regards to the existence of demand and the conditions for demand. This enables the potential bidder to formulate an offer, which is indicative for the market price. The fact that no eligible bidder has made a proposal demonstrates that the demanded price was below the market price. An accurately exercised tender procedure requires that the call has been properly publicised and that potential buyers have sufficient time to formulate their proposals. The Austrian authorities stress that the notices advertised by KLU complied with these requirements.

(192)

Austria underlines that, for Carinthia and KLU, advertising on ryanair.com made sense only if Ryanair served the airport. Only in that case, the targeted customers could translate their initial interest into an effective purchase. The same applies to the routes to and from London, which are designed to improve local mobility.

(193)

Furthermore, Austria supports a number of statements from Ryanair:

(194)

Regarding AMS' comments, the Austrian authorities underline the strategic purpose underlying advertising on the internet, especially on ryanair.com. In fact, Ryanair's website target group is in line with Carinthia's and KLU's client portfolio. A private investor would therefore be willing to enter into such advertising agreements with AMS.

(195)

The Commission has analysed whether the following measures qualify as State aid:

(196)

Under Article 107(1) TFEU any aid granted by a Member State or through State resources in any form whatsoever which distorts or threatens to distort competition by favouring certain undertakings or the production of certain goods shall, in so far as it affects trade between Member States, be incompatible with the internal market.

(197)

The criteria in Article 107(1) TFEU are cumulative. Therefore, in order to determine whether the measure in question constitutes aid within the meaning of Article 107(1) TFEU all of the following conditions need to be fulfilled:

(198)

As further described in recitals 30 et seq. above, KFBG benefited from repeated financial support from its shareholders, the Federal Ministry of the Interior and the Federal Ministry of Finances. These financial contributions were used to cover annual operating losses of KFBG/DMG due to the costs linked to the marketing contracts of KFBG with different airlines.

(199)

According to settled case law, the Commission must first establish whether KFBG and DMG are undertakings within the meaning of Article 107(1) TFEU. The concept of an undertaking covers any entity engaged in an economic activity, regardless of its legal status and the way in which it is financed (21). Any activity consisting in offering goods or services on a given market is an economic activity (22).

(200)

In its Leipzig/Halle Airport judgment the General Court confirmed that the operation of an airport for commercial purpose and the construction of the airport infrastructure for commercial purpose constitute an economic activity (23). Once an airport operator engages in economic activities by offering airport services against remuneration, regardless of its legal status or the way in which it is financed, it constitutes an undertaking within the meaning of Article 107(1) TFEU, and the Treaty rules on State aid are therefore capable of applying to advantages granted by the State or through State resources to that airport operator (24).

(201)

Regarding the moment in time as of which the construction and operation of an airport became an economic activity, the Commission recalls that the gradual development of market forces in the airport sector does not allow for a precise date to be determined. However, the Court of Justice of the European Union has recognised the evolution in the nature of airport activities and in its judgment in Leipzig/Halle Airport, the General Court held that from 2000 onward the application of State aid rules to the financing of airport infrastructure could no longer be excluded (25). Consequently, at least as of the date of the judgment in Aéroports de Paris, 12 December 2000 (26), the operation and construction of airport infrastructure must be considered an economic activity falling within the ambit of State aid control.

(202)

Before examining the nature of the activities carried out by KFBG and DMG, however, the Commission recalls that two separate legal entities may be considered to form one economic unit for the purpose of the application of State aid rules. That economic unit is then considered to be the relevant undertaking.

(203)

As the Court of Justice held, ‘[i]n competition law, the term ‘undertaking’ must be understood as designating an economic unit […] even if in law that economic unit consists of several persons, natural or legal.’ (27). In this respect, the Court has ruled that several entities can be deemed to perform an economic activity together, thereby constituting an economic unit, under specific conditions.

(204)

To determine whether several entities form an economic unit, the Court of Justice looks at the existence of a controlling share or functional, economic or organic links (28).

(205)

In this case, the Commission considers that KFBG and DMG are so closely connected that they must be considered to constitute one single economic unit for the purposes of State aid rules. It must be recalled that DMG is a 100 % subsidiary of KFBG, giving KFBG the power to control DMG via the shareholder assembly.

(206)

In practice, the available information demonstrates that important decisions regarding KLU are regularly taken at the level of KFBG, with instructions then being passed down to DMG.

(207)

In conclusion, the Commission considers that the links between KFBG and DMG are sufficiently close to treat the two entities as one economic unit. In particular, DMG is economically and legally entirely dependent on KFBG and does not have a commercial will of its own. For the purpose of the application of Union State aid law, KFBG/DMG therefore form one undertaking.

(208)

KFBG/DMG are engaged in constructing, maintaining and operating KLU. KFBG/DMG offer airport services and charge users — commercial aviation operators as well as non-commercial general aviation users — for the use of the airport infrastructure, thereby commercially exploiting the infrastructure. Following from the case law cited in recitals 200 and 201, it must be concluded that KFBG/DMG were engaged in an economic activity at least as of the date of judgment in Aéroports de Paris (that is to say, 12 December 2000) onward.

(209)

It is clear from the submission of Austria that KLU had already prior to 2000 successfully attracted commercial aviation as well as general aviation.

(210)

It is therefore concluded that from 12 December 2000 onward, KFBG/DMG were engaged in an economic activity and constitute, as a single economic unit, an undertaking for the purposes of Article 107(1) TFEU.

(211)

While KFBG/DMG must therefore be considered to constitute an undertaking for the purposes of Article 107(1) TFEU, it must be recalled that not all activities of an airport owner and operator are necessarily of an economic nature (29).

(212)

The Court of Justice (30) has held that activities that normally fall under a State's responsibility in the exercise of its official powers as a public authority are not of an economic nature and do not fall within the scope of the rules on State aid. Such activities may include, for example, security, air traffic control, police, customs. The financing has to be strictly limited to compensation of the costs to which they give rise and may not be used instead to fund other economic activities (31).

(213)

Therefore, the financing of activities falling within the public policy remit or of infrastructure directly related to those activities in general does not constitute State aid (32). At an airport, activities such as air traffic control, police, customs, firefighting, activities necessary to safeguard civil aviation against acts of unlawful interference and the investments relating to the infrastructure and equipment necessary to perform those activities are considered in general to be of a non-economic nature (33).

(214)

However, public financing of non-economic activities necessarily linked to the carrying out of an economic activity must not lead to undue discrimination between airlines and airport managers. Indeed, it is established case law that there is an advantage when public authorities relieve undertakings of the costs inherent to their economic activities (34). Therefore, if in a given legal system it is normal that airlines or airport managers bear the costs of certain services, whereas some airlines or airport managers providing the same services do not have to bear those costs, the latter may enjoy an advantage, even if those services are considered in themselves as non-economic. Therefore, an analysis of the legal framework applicable to the airport operator is necessary in order to assess whether under that legal framework airport managers or airlines are required to bear the costs of the provision of some activities that might be non-economic in themselves but are inherent to the deployment of their economic activities.

(215)

Austria submitted that the costs arising from the airport security measures pursuant to § 1, 2, 8, 9 and 13 Luftfahrtssicherheitsgesetz of 1992 (Aviation Security Law, hereinafter: ‘LSG’) are to be considered falling within the public policy remit. KFBG had received from 2000-2010 the reimbursement of the following amounts:

Table 7

Reimbursement by the Federal Ministry of Interior Affairs and the Federal Ministry of Finances 2000-2010

(216)

The Commission notes, that pursuant to § 8, 9 and 13(2) LSG only the costs related to the provision and maintenance of spaces and premises necessary for the performance of the activity as described in § 1 and 2 LSG may be reimbursed. According to § 1 and 2 LSG the airport operator is obliged to guarantee the precautionary protection of civil aircrafts including the people on board or boarding the aircraft of dangerous attacks with arms, ammunition and war material and any other dangerous devices. To this end, airport operator have to carry out effective security controls. All other costs that are not related to this activity must be borne by the airport operator.

(217)

The Commission is of the view that the carrying out of effective security controls to guarantee the precautionary protection of civil aviation has to be considered to be an activity of non-economic nature as explained in point 35 the 2014 Aviation Guidelines. Therefore, as regards operating expenses incurred between 2000 and 2010 for this activity, the Commission considers that those costs for which the airport operator is entitled to reimbursement pursuant to § 8, 9 and 13 LSG qualify as public policy remit costs.

(218)

According to the information submitted by Austria, the practical implementation of the reimbursement procedure of the claims of the airport, that had to be documented in detail, provided a double check by the fiscal authority and the Federal Ministry of Interior. An overcompensation was therefore excluded. KFBG could separate the costs of the public policy remit from other costs with a complicated recording system that attributed the costs to the individual flights operated at KLU.

(219)

The Commission also notes that the Luftfahrtssicherheitsgesetz as a federal law was applied uniformly at all Austrian airports and that there was no discrimination between airport managers.

(220)

The Commission therefore concludes that the reimbursement of the operating costs incurred between 2000-2010 in relation to § 1, 2, 8, 9 and 13 LSG falls within the public policy remit and is therefore exempted from the scrutiny under State aid rules.

(221)

Austria also submitted that KLU is used regularly by Austrian military forces as well as police interventions and the Christophorus-Air-Emergency. The Commission agrees that these activities can be considered responsibilities of public administration. As the Austrian authorities however have not demonstrated that KFBG has received reimbursement for the costs of these activities, the conditions for the reimbursement of public remit costs are not fulfilled.

(222)

In conclusion, the Commission considers that all costs, which are not considered costs under public policy remit pursuant to § 1, 2, 8, 9 and 13 LSG, qualify as an economic activity.

(223)

In order to constitute State aid, the measures in question have to be financed from State resources and the decision to grant the measure must be imputable to the State.

(224)

The concept of State aid applies to any advantage granted through State resources by the State itself or by any intermediary body acting by virtue of powers conferred on it (35). Resources of local authorities are, for the application of Article 107 TFEU, State resources (36).

(225)

In this case, the relevant measures — namely financial contributions to KFBG and DMG — were granted from the budget of the local authorities. The financial contributions came directly from the State of Carinthia, the city of Klagenfurt and KLH. The financial contributions provided by the State of Carinthia and the city of Klagenfurt have to be considered State resources. The same holds for KLH: KLH was a legal person governed by public law and established in 1990 by the KLH-G, which also contains the statutes of KLH. KLH acted as owner company (holding), i.e. State assets agency for the shares which the State of Carinthia holds in different involvements. KLH managed a special fund called ‘Zukunft Kärnten’ for the direct and indirect financing of projects. This fund consisted of EUR 500 million that were provided from the budget of the State of Carinthia. Thus, all financial contributions KFBG received from KLH have to be considered State resources.

(226)

Concerning imputability, in its Stardust Marine judgment the Court of Justice furthermore held that the fact that the State or a State entity is the sole or majority shareholder of an undertaking is not sufficient to find that a transfer of resources by that undertaking is imputable to its public shareholders (37). According to the Court of Justice, even if the State was in a position to control a public undertaking and to exercise a dominant influence over its operations, actual exercise of that control in a particular case could not be automatically presumed, since a public undertaking may also act with more or less independence, according to the degree of autonomy left to it by the State.

(227)

According to the Court of Justice, indicators from which imputability might be inferred, are (38):

(228)

The Commission considers that the financial contributions to KFBG and DMG are imputable to the State. The relevant measures of the State of Carinthia and the city of Klagenfurt — namely the financial contributions to KFBG and DMG — were granted directly from the budget of the local and regional authorities. Thus the Commission considers that they are imputable to the State.

(229)

The same holds for the financial contributions KFBG and DMG received from KLH. The State of Carinthia was not only in a position to control KLH and exercised a dominant influence over its operations, it also had actual control over the financial contributions KFBG received from KLH. The legal status of KLH shows that KLH was a legal person sui generis with the only mandate to manage the State assets in the interest of the State of Carinthia. Also the nature of KLH's activities points to the fact that its activities were solely in the interest of the State of Carinthia: KLH held 80 % of the shares of KFBG and thus actively represented the State of Carinthia's interest in the existence and maintenance of a viable and performing airport at Klagenfurt for the State of Carinthia. Also the content of the measures KLH carried out for the State of Carinthia indicated that KLH was acting for the State of Carinthia: the decision to give financial contributions was important for the existence of KLU and therefore to a great extent in the interest of the State of Carinthia.

(230)

Moreover, according to the statutes of KLH, the board of KLH was appointed directly by the supervisory board of KLH. The supervisory board was appointed directly by the government of the State of Carinthia. It is stipulated in the statutes that the members of the supervisory board shall represent the proportions of the political parties represented in the government of the State of Carinthia. Moreover, the supervisory board had to agree for any investment decision of the board above the amount of EUR 50 000. According to § 5 of the statutes of KLH, KLH was under a constant supervision by the government of the State of Carinthia. The government of Carinthia had to ensure that all decisions of KLH were in the interest of the State of Carinthia.

(231)

It follows from the above that KLH's supervisory board had to agree on any decision taken by KLH's board concerning the financing of KFBG above EUR 50 000. The members of the supervisory board represented the political parties of the government of Carinthia. In addition, the government of the State of Carinthia supervised these decisions and had to ensure by this supervision that they were taken in the interest of the State of Carinthia. This was confirmed by the Austrian authorities, which declared that the government of Carinthia was involved in all decisions concerning the financing of KFBG by KLH.

(232)

In the light of these considerations, the Commission considers that there are sufficient indicators to find that the financial contributions by KLH are imputable to the State.

(233)

An advantage within the meaning of Article 107(1) TFEU is any economic benefit which an undertaking would not have obtained under normal market conditions, that is to say, in the absence of State intervention (39). Only the effect of the measure on the undertaking is relevant, not the cause nor the objective of the State intervention (40). Whenever the financial situation of the undertaking is improved (compared to normal market conditions) as a result of State intervention, an advantage is present.

(234)

The Commission further recalls that ‘capital placed directly or indirectly at the disposal of an undertaking by the State in circumstances which correspond to normal market conditions cannot be regarded as State aid’ (41). In this case, in order to determine whether the public financing of KLU grants KFBG/DMG an advantage that it would not have received under normal market conditions, the Commission has to compare the conduct of the public authorities providing the direct investment grants and financial contributions to that of a MEO who is guided by prospects of profitability in the long-term (42).

(235)

The assessment should leave aside any positive repercussions on the economy of the region in which the airport is located, since the Court has clarified that the relevant question for applying the MEO principle is whether ‘in similar circumstances a private shareholder, having regard to the foreseeability of obtaining a return and leaving aside all social, regional-policy and sectorial considerations, would have subscribed the capital in question’ (43).

(236)

In order to be able to apply the MEO principle, the Commission has to place itself at the time when each decision to provide public funds to KFBG/DMG was taken. The Commission must also base its assessment on the information and assumptions which were at the disposal of the relevant local authorities at the time when the decision regarding the financial arrangements of the infrastructure measures at stake was taken.

(237)

The financial contributions by the State of Carinthia, the city of Klagenfurt and KLH essentially served to cover KFBG's and DMG's losses. According to elements submitted by Austria, the financial contributions were partly granted to cover losses that were caused by the costs incurred by KFBG through marketing contracts concluded between KFBG and DMG with different airlines. The Commission is of the opinion that such costs, which occurred through marketing contracts with airlines, have to be considered normal operating costs of an airport operator. Indeed, such costs derived from contractual obligations entered into by the airport operator with airlines. Under those arrangements, the airport operator purchases from an airline marketing services for the promotion of the air transport services offered by the airline in question, to the benefit of both the airport operator and the airline. Therefore, the financial contributions in the end served to cover a part of the normal operating expenses of KFBG/DMG, thereby relieving both undertakings of an economic burden they would normally have to bear.

(238)

Austria did not explicitly argue that the financial contributions complied with the MEO principle. It rather submitted that closing the airport was never a realistic option for the local authorities and that, given the need and obligation to operate the airport, it was economically sensible to attract more commercial aviation. At other points, Austria argued that the financial contributions for the airport were motivated by the will to economically invigorate the region and underlined the importance of the airport for the regional economy.

(239)

However, social and regional considerations cannot be taken into account when conducting the MEO test. While it could, in principle, be accepted that even non-repayable grants to a company that is entirely owned by the State could qualify as market-conform investments, Austria has not presented a business plan or any ex ante calculations such as a sensitivity analysis or underlying profitability assumptions regarding the expected profitability of the financial contributions. Austria has not explained why a MEO would continue injecting capital into an undertaking that generates losses. Austria has therefore not submitted that the financial contributions were normal market investments.

(240)

Finally, the Commission notes that according to the information submitted by the Austrian authorities, since 2002, KFBG/DMG have generated losses in most of the relevant years, if the financial contributions received from public authorities for the costs of the marketing contracts with airlines are disregarded when considering the net results of the respective years.

(241)

The Commission concludes that the financial contributions in favour of KFBG/DMG could not be expected to generate a reasonable return on investment for the entities providing them, and were thus not provided under normal market conditions. In this light, the financial contributions must be qualified as granting an economic advantage to KFBG/DMG.

(242)

Austria argued that the financing of KFBG and DMG through payments of the State of Carinthia, the city of Klagenfurt as well as KLH would be in line with the requirements of the Altmark jurisprudence (44) and would therefore not constitute an advantage. The overall management of the airport would qualify as SGEI given the need to guarantee accessibility of the region of Carinthia and therefore the financing in question would amount to compensation for the provision of an SGEI by the airport.

(243)

In case of undertakings entrusted with the provision of an SGEI, in order to conclude whether the measures under assessment constitute an advantage within the meaning of Article 107(1) TFEU, the Commission must examine observance of the conditions set out by the Court in its judgement in the Altmark case. Those conditions may be summarised as follows:

(244)

The Commission first assesses observance of the Altmark 4 criterion. Given that the Altmark criteria have to be complied with cumulatively, non-observance of either one of those conditions would lead to the conclusion that the presence of an advantage cannot be excluded on the basis of this test, even if the services provided by KFBG/DMG qualify as SGEIs.

(245)

Altmark 4 criterion provides that the compensation must be the minimum necessary for an efficient undertaking in order to escape State aid qualification. This criterion is deemed to be fulfilled if the recipients of the compensation have been chosen following a tender procedure ensuring the provision of services at the least costs for the community or, failing that, the compensation has been calculated by reference to the costs of an efficient undertaking.

(246)

According to the information submitted by Austria, the beneficiary has not been chosen following a public tender procedure. The State of Carinthia has not organised a tender for the operation of KLU but has established the company KFBG operating the airport.

(247)

Moreover, the evidence does not show that the level of compensation has been determined on the basis of an analysis of the costs which a typical undertaking, well run and adequately provided with means so as to be able to meet the necessary public service requirements, would have incurred in discharging those obligations, taking into account the relevant revenues and a reasonable profit for discharging the obligations. Indeed, there is no element in the file suggesting that an analysis of the costs that a typical airport manager would incur when operating an airport comparable to KLU has been performed for the purposes of setting the level of the financial contributions granted to KFBG. The Austrian authorities have not provided any such analysis. The financial contributions for KFBG simply seem to cover the financial needs of KFBG without any prior analysis of the costs.

(248)

Consequently, there is no evidence to support the argument that KFBG provides airport services at the least cost to the community.

(249)

Furthermore, all the calculations of compensations were one-off payments that were not part of a compensation mechanism designed ex ante. In the present case the parameters on the basis of which the SGEI compensation should be calculated have not been established in advance, nor in an objective and transparent manner. Therefore, Altmark 2 is not fulfilled either.

(250)

Since the Altmark criteria are cumulative, it is sufficient at this stage for the Commission to observe that either the second or the fourth criterion are not met in the present case to conclude that the measures at issue cannot be considered free of State aid based on the Altmark judgement. The question, whether the operation of KLU amounts to an SGEI or whether Austria made a manifest error in the definition of the SGEI can be left open. The Commission therefore concludes that the measure provides KFBG with an economic advantage.

(251)

To fall within the scope of Article 107(1) TFEU, a State measure must favour ‘certain undertakings or the production of certain goods’. Hence, only those measures favouring undertakings which grant an advantage in a selective way fall under the notion of State aid.

(252)

In the case at hand, the financial contributions only benefit KFBG/DMG. The measures are thus selective by definition within the meaning of Article 107(1) TFEU.

(253)

When aid granted by a Member State strengthens the position of an undertaking compared with other undertakings competing in the internal market, the latter must be regarded as affected by that aid (45). The economic advantage granted by the direct investment grants and the financial contributions in this case to the airport operator strengthen its economic position, as the airport operator was able to set up its business without bearing all of the inherent investment and operating costs.

(254)

As assessed in recitals 208 et seq., the operation of an airport is an economic activity. Competition takes place, on the one hand, between airports to attract airlines and the corresponding air traffic (passengers and freight), and, on the other hand, between airport managers, which may compete between themselves to be entrusted with the management of a given airport. Moreover, in particular with respect to low cost carriers and charter operators, airports that are not located in the same catchment areas and even in different Member States can also be in competition with each other to attract those airlines.

(255)

As mentioned in point 40 of the 2005 Aviation Guidelines and reaffirmed in point 45 of the 2014 Aviation Guidelines, it is not possible to exclude even small airports from the scope of application of Article 107(1) TFEU. Furthermore, point 45 of the 2014 Aviation Guidelines explicitly states that ‘the relatively small size of the undertaking which receives public funding does not, as such, exclude the possibility that trade between Member States might be affected.’

(256)

KLU serves since 2012 approximately 230 000 passengers per year, and has served as many as approximately 520 000 passengers per year from 2004 to 2007 in the past. As observed in recital 21 KLU is located in the vicinity of Ljubljana Airport (80 km) and within 2 hours' drive from six other airports. There are international flights from KLU to destinations such as London, Frankfurt, Munich, Hamburg or Vienna. The runway at Klagenfurt is of sufficient length (2 720 m) and allows airlines to serve medium-haul international destinations. In the light of these facts, it must be considered that public funding to KFBG/DMG distorts or threatens to distort competition and has at least a potential effect on trade between Member States.

(257)

Against this background, the public financing granted to KFBG/DMG must be considered liable to distort competition and have an effect on trade between Member States.

(258)

In the light of the above considerations, the Commission considers that the public funding granted to KFBG/DMG in the form of financial contributions between 2000 and 2010 constitutes State aid within the meaning of Article 107(1) TFEU.

(259)

The 2005 incentive scheme offers discounts for airlines for providing specific air transport services. In particular it offered discounts for new flight destinations, for intensified existing flight connections and for more frequent and more reliable existing flight connections as described in recitals 33 to 38.

(260)

By providing such air transport services, airlines are performing an economic activity and therefore constitute undertakings within the meaning of Article 107(1) TFEU. It must be analysed whether the 2005 incentive scheme granted the airlines using KLU an economic advantage.

(261)

Where an airport has public resources at its disposal, aid to an airline can, in principle, be excluded where the relationship between the airport and the airline satisfies the MEO test.

(262)

Under the 2014 Aviation Guidelines (46), the existence of aid to an airline using a particular airport can, in principle, be excluded if the price charged for the airport services corresponds to the market price, or if it can be demonstrated through an ex ante analysis — that is to say one founded on information available when the aid is granted and on developments foreseeable at the time — that the airport/airline arrangement will lead to a positive incremental profit contribution for the airport and is part of an overall strategy leading to profitability in the long term. The second approach means that it must be assessed whether, at the date when an agreement was concluded, a prudent market economy operator would have expected the agreement to lead to a higher profit than would have been achieved otherwise. That higher profit is to be measured by the difference between the incremental revenues expected to be generated by the agreement (that is, the difference between the revenues that would be achieved if the agreement were concluded and the revenues that would be achieved in the absence of the agreement) and the incremental costs expected to be incurred as a result of the contract (that is, the difference between the costs that would be incurred if the agreement were concluded and the costs that would be incurred in the absence of the agreement), the resulting cash flows being discounted with an appropriate discount rate.

(263)

However, as regards the first approach (a comparison with the ‘market price’), the Commission does not consider that, at the present time, an appropriate benchmark can be identified to establish a true market price for services provided by airports (47). It therefore considers an ex ante incremental profitability analysis to be the most relevant criterion for the assessment of arrangements concluded by airports with individual airlines.

(264)

It should be noted that, in general, the application of the MEO principle based on an average price on other, similar markets may prove helpful if such a price can be reasonably identified or deduced from other market indicators. However, this method is not as relevant in the case of airport services, as the structure of costs and revenues tends to differ greatly from one airport to another. This is because costs and revenues depend on how developed an airport is, the number of airlines which use the airport, its capacity in terms of passenger traffic, the state of the infrastructure and related investments, the regulatory framework which can vary from one Member State to another and any debts or obligations entered into by the airport in the past (48).

(265)

Moreover, the liberalisation of the air transport market complicates any purely comparative analysis. As can be seen in this case, commercial practices between airports and airlines are not always based exclusively on a published schedule of charges. Rather, these commercial relations vary to a great extent. They include sharing risks with regard to passenger traffic and any related commercial and financial liability, standard incentive schemes and changing the spread of risks over the term of the agreements. Consequently, one transaction cannot really be compared with another based on a turnaround price or price per passenger.

(266)

In addition, benchmarking is not an appropriate method to establish market prices if the available benchmarks have not been defined with regard to market considerations or the existing prices are significantly distorted by public interventions. Such distortions appear to be present in the aviation industry, for reasons explained in points 57 to 59 of the 2014 Aviation Guidelines:

‘Publicly owned airports have traditionally been considered by public authorities as infrastructures for facilitating local development and not as undertakings operating in accordance with market rules. Those airports' prices consequently tend not to be determined with regard to market considerations and in particular sound ex ante profitability prospects, but essentially having regard to social or regional considerations.

Even if some airports are privately owned or managed without social or regional considerations, the prices charged by those airports can be strongly influenced by the prices charged by the majority of publicly subsidised airports as the latter prices are taken into account by airlines during their negotiations with the privately owned or managed airports.

In those circumstances, the Commission has strong doubts that at the present time, an appropriate benchmark can be identified to establish a true market price for services provided by airports. This situation may change or evolve in the future […]’.

(267)

Moreover, as the Union courts have recalled, benchmarking by reference to the sector concerned is merely one analytical tool amongst others to determine if a beneficiary has received an economic advantage which it would not have obtained in normal market conditions (49). As such, while the Commission may use that approach, it is not obliged to do so where, as in the present case, it would be inappropriate to do so.

(268)

In its study of 9 April 2013 (Oxera note 3), Ryanair essentially argues that the MEO test can be applied based on a comparison with the commercial arrangements of other European airports.

(269)

It should firstly be noted that, during the procedure, neither Austria nor any interested third party has suggested to the Commission a sample of comparison airports that may be used in this case and that are sufficiently comparable to KLU in terms of traffic volume, type of traffic, type and level of airport services provided, proximity of the airport to a large city, number of inhabitants in the catchment area, prosperity of the surrounding area, and different geographical areas from which passengers could be attracted.

(270)

The Oxera study of 4 July 2011 was limited to a comparison between charges paid by Ryanair at […] and […] airports, and the charges paid by Ryanair under the airport services agreements at KLU. The study did not assess whether the sample of benchmark airports fulfilled all the criteria spelled out in the 2014 Aviation guidelines, as it only assessed traffic volumes, type of airport traffic and prosperity of the surrounding area (50).

(271)

Even if a sample of comparison airports had been available, a comparative method would have been totally unworkable in this case. As showed above, the incentive scheme to be analysed offers different discounts for airlines for providing very specific air transport services (for new flight destinations, for intensified existing flight connections and for more frequent and more reliable existing flight connections). Moreover, regarding the marketing agreements between KFBG and the airlines, complex packages have to be analysed. The packages consist of an airport services agreement and a marketing services agreement (sometimes combined within the same legal medium). These transactions involve several ‘prices’, namely the various airport charges, price of the ground handling services and price of the marketing services, some of which depend on the number of passengers and others on the number of aircraft movements, with others involving fixed amounts. Each of these transactions therefore leads to a complex set of financial flows between the airport operator and the airline and its subsidiaries, consisting of the revenue from the airport charges, revenue linked to the ground handling services and revenue linked to the marketing services.

(272)

Accordingly, a comparison between just the airport charges invoiced by the KFBG to the airlines concerned and the airport charges invoiced at the comparison airports would not provide any useful indication as to whether the MEO test was satisfied. At the very least, in order to validly compare the transactions covered by this assessment, it would be necessary to identify, for the airports in the comparison sample, a set of comparable transactions, which must particularly include equivalent marketing services and equivalent ground handling services. Identifying such a sample of comparable transactions would prove impossible, given that the transactions covered by this assessment are so complex and specific, and all the more so as the prices of ground handling services and marketing services are rarely made public and would be difficult to obtain in order to form a basis for comparison.

(273)

Lastly, assuming that it could be established, based on a valid comparative analysis, that the ‘prices’ applied in the various transactions covered by this assessment were equivalent to or higher than the ‘market prices’ established using the sample of comparison transactions, the Commission could not, however, conclude that those transactions corresponded to the market price if it proved that, on their conclusion, the airport operator may have expected them to lead to incremental costs higher than the incremental revenues. An MEO would not in fact be interested in offering goods or services at the ‘market price’ if this led to an incremental loss.

(274)

The Commission considers it appropriate to reiterate in the context of this analysis that, following the adoption of the 2014 Guidelines, both Austria and the interested parties were invited to submit comments on the application of those guidelines to the present case (see recital 8). In the event, neither Austria nor the interested parties disputed in substance the Commission's approach according to which, where an appropriate benchmark cannot be identified to establish a true market price for the services provided by airports to airlines, the most relevant criterion for assessing the arrangements concluded between these two parties is an ex ante incremental profitability analysis.

(275)

In the light of all the above, the Commission considers that the approach generally recommended in the 2014 Guidelines for applying the MEO test to relationships between airports and airlines, namely the ex ante incremental profitability analysis, must be applied to the present case (51).

(276)

This approach is justified by the fact that an airport operator may have an objective interest in concluding a transaction with an airline where it may reasonably expect this transaction to improve its profits (or reduce its losses) compared to a counterfactual situation in which this transaction is not concluded, regardless of any comparison with the conditions offered to airlines by other airport operators, or even with the conditions offered by the same airport operator to other airlines.

(277)

In addition to the above considerations, the airport infrastructure must be open to all airlines and not dedicated to a specific airline in order to exclude that the advantage resulting from compatible aid to the airport operator is not passed on to a specific airline.

(278)

The Commission also notes in this context that price differentiation is a standard business practice. Such differentiated pricing policies should, however, be commercially justified.

(279)

The 2005 incentive scheme was introduced to enhance the competitiveness of KLU. When drawing up the 2005 incentive scheme, the operator of KLU analysed passenger numbers, airport movements as well as the financial results of the previous years. According to Austria, a market comparison undertaken at that time showed that KLU due to its high average fixed costs was a particularly expensive airport in Austria.

(280)

The Commission observes that since 1 October 2003 AUA had unilaterally reduced its payments for the turnaround fees due at KLU. Although on 20 October 2005 KFBG and AUA signed a settlement agreement concerning the payment of turnaround feed during the period of 1 October 2003 until 20 October 2005, KFBG had to face considerable shortfalls regarding the payments of airport charges from October 2003 to October 2005. In addition, all 2002 agreements between KFBG, DMG, Ryanair, LV and AMS ended suddenly in October 2005, when Ryanair stopped to operate the passenger air services between KLU and STN due to economic reasons. All these factors together led KLU to reconsider its pricing policy and to introduce the 2005 incentive scheme.

(281)

According to the information submitted by Austria, a detailed ex ante profitability study was prepared by the executive board of KFBG and authorised by the supervisory board of KFBG.

(282)

When assessing this ex ante profitability study, the Commission observes that KFBG prepared a comprehensive study on the basis of its full cost basis accounting system. This ex ante cost-benefit analysis contains a detailed formula for the calculation of the full costs of KFBG. The costs are split into different cost factors that cover all costs incurred when operating the airport (landing tariff, infrastructure landing tariff, infrastructure air tariff, passenger tariff, traffic handling fee, ramp handling fee). The profitability study also contains a detailed explanation on how the cost factor of EUR […] for the costs depending on the number of flights, i.e. MTOW, and of EUR […] depending on the number of passengers were calculated, based on the cost calculation system of KFBG in force at the time. As 51 % of the traffic handling was subcontracted to Tyrolean Airways, these costs were indicated in the cost calculation as costs of services of a third party. The capitalisation interest rate of 8 % as indicated by KFBG was calculated according to the Weighted Average Cost of Capital method and corresponded to the rate as published by Vienna airport as of 2002. As non-aeronautical income, KFBG listed income factors such as the airport shops, the parking at the airport, the freight storehouse and the income from rent and lease agreements. The average income of these sources less the costs of these sources, measured on the basis of observed data from recent years, resulted in an average non-aeronautical income of EUR […] per passenger. Brought down to a round figure, KFBG indicated EUR […] of non-aeronautical income per passenger. All those underlying assumptions appear reasonable. In particular, they are based on cost and revenue observations and, in the case of cost data, on an elaborate cost measurement system.

(283)

These established values for costs and incomes of KFBG were used subsequently in the cost-benefit analysis in different calculation models. These models represented different envisaged routes from and to KLU with different aircrafts and under the assumption of varying degrees of capacity utilisation. The routes chosen corresponded to typical routes of interest of a small regional airport such as Klagenfurt airport. Those analyses are in line with the incremental costs method set out in the Aviation Guidelines, as they measure whether the revenues expected from the additional traffic under each model could be expected to cover the corresponding incremental costs and a reasonable profit. On request of the Commission, Austria submitted additional models, with the aim of covering all typical scenarios and possible routes of interest for KFBG in 2005.

(284)

Austria has submitted that KLU expected that no additional investments would be required to provide additional airport services to airlines attracted by the 2005 incentive scheme. In this context, the Commission observes that the 2005 incentive scheme offered discounts only for new airlines, new connections, or increased passenger numbers with the consequence that it did not impact negatively on the status quo at the airport. The Commission notes that particularly after the departure of Ryanair in October 2005 KLU had spare capacities, with the consequence that additional traffic could be handled without the need to upgrade infrastructure or acquire additional equipment or hire new staff. Austria confirmed that there was no need to hire new staff or to expand existing infrastructure or other equipment in order to serve new airlines or connections (for instance the existing baggage belts and personnel were sufficient). Hence, the Commission concludes that the incremental costs were limited to the incentives offered by the 2005 incentive scheme.

(285)

Moreover, KLU expected that with any new airline or connection, aeronautical as well as non-aeronautical revenues would be generated. Given that the level of costs remained stable, any new airline or connection would, according to Austria, provide a positive contribution to the airport's profitability. KLU could therefore expect from an ex ante perspective that any new airline or connection would lead to an increase of revenues as no investments were necessary at the same time. The Commission is of the view that indeed the 2005 incentive scheme has been incrementally profitable form an ex ante perspective.

(286)

This conclusion is reinforced by the fact that KFBG indeed managed to attract a number of new airlines (such as Air Berlin, Robin Hood, Condor, Lufthansa, Germanwings), to intensify existing destinations (AUA), and to establish new connections after the introduction of the 2005 incentive scheme. KLU's discount-based strategy to increase its business was successful. The available data finally demonstrates that the 2005 incentive scheme resulted in a gradual increase of revenue for the airport (aviation and non-aeronautical revenues from EUR […] in 2006 to EUR […] in 2010).

(287)

The Commission further notes that when assessing the 2005 incentive scheme, it should also assess the extent to which the arrangements can be considered part of the implementation of an overall strategy of the airport to lead to profitability at least in the long term. In this respect, the Commission has to take into account the factual evidence that was available and the developments that could reasonably be expected at the time when the 2005 incentive scheme was made, in particular the prevailing market conditions. Notably, the Commission should take into account the market changes induced by the liberalisation in the air transport market, the market entry and development of low cost carriers and other point-to-point carriers, changes in the organisational and economic structure of the airport industry as well as the degree of diversification and complexity of the functions undertaken by airports, the enhancement of the competition between airlines and airports, the uncertain economic environment due to the changes in the prevailing market conditions or any other uncertainty in the economic environment. The Commission notes that, as described in recitals 279-280, several reasons (such as the shortfalls regarding the payments of airport charges from October 2003 to October 2005 by AUA as well as the departure of Ryanair as of October 2005) led KLU to consider the 2005 incentive scheme a necessary step in ensuring its future viability and profitability.

(288)

Finally, the Commission notes that the airport infrastructure of KLU is open to all airlines and not dedicated to a specific airline. Likewise the 2005 incentive scheme was published on the website of KLU and was open to all interested airlines.

(289)

In the light of these considerations, the Commission concludes that KLU acted like a MEO when adopting the 2005 incentive scheme. Therefore, the measure did not grant the affected airlines any economic advantage and did not constitute State aid within the meaning of Article of 107(1) TFEU. It has to be emphasised that this conclusion only holds for airlines to which the 2005 incentive scheme was applied as such. Whenever the application of the scheme to a given airline was combined with a bilateral agreement, for instance a marketing agreement, this conclusion does not automatically apply. Indeed, in such circumstances, the combined effects of the incentive scheme and of the bilateral agreement have to be taken into account when applying the MEO principle.

(290)

AUA, by providing air transport services, performs an economic activity and therefore constitutes an undertaking within the meaning of Article 107(1) TFEU.

(291)

In order to assess whether an agreement between a publicly-owned airport with public resources at its disposal and an airline confers an economic advantage on the latter, it is necessary to analyse whether that agreement complied with the MEO principle as described above under recitals 261 to 278.

(292)

When deciding on whether to enter into an airport services agreement and/or a marketing services agreement, a MEO will choose a time frame for its assessment based on the term of the agreement. In other words, a prudent MEO will assess the incremental costs and revenues for the term of application of the agreement.

(293)

In this case a particularity has to be observed for the situation of KFBG at the moment of signing the agreement with AUA. On 20 October 2005 KFBG had to take into consideration not only the development of its contractual relation with AUA for the future, but also the past until October 2003. Since 1 October 2003 AUA had unilaterally reduced its payments for the turnaround fees due at that time at KLU. On 17 November 2003 KFBG therefore brought against AUA a civil law action at the local district court concerning the airport fees still due. When signing the settlement agreement on 20 October 2005 following this dispute, KFBG therefore had to take into consideration not only the future airport charges to be paid by AUA but also the still outstanding airport charges of the past period, which it hoped to recover.

(294)

On 20 October 2005 KFBG and AUA signed a settlement agreement concerning the period from 1 October 2003 to 20 October 2005. In this settlement agreement the two parties agreed to end two different ongoing litigations. The first litigation at the local district court concerned the civil law action of KFBG against AUA concerning the airport fees still due. The second litigation concerned an action of AUA against KFBG in competition law at the national cartel court.

(295)

The following points were agreed within the settlement agreement:

(296)

Austria asserts that KFBG/DMG did not prepare an ex ante business plan before concluding the settlement agreement with AUA.

(297)

It explained that prior to the signature of the settlement agreement, KFBG, KLH and the law firm representing KFBG in both court proceedings had evaluated in detail the legal and economic advantages and disadvantages of signing the agreement. To demonstrate these evaluations and considerations Austria has submitted numerous reports and protocols submitted by the management board of KFBG to the supervisory board of KFBG (52) as well as the available legal documents of the legal proceedings.

(298)

From these documents the following conclusion can be drawn:

(299)

On the one hand, AUA had in October 2005 a total debt of EUR […] of unpaid turnaround fees towards KLU. For this reason KFBG had brought a civil law action at the local district court against AUA, as it believed that AUA was not entitled to unilaterally reduce its payments as of October 2003. As KFBG had fulfilled its obligations from its air service agreement with AUA, it seemed consequent for KFBG to take legal action.

(300)

On the other hand it has to be observed that AUA submitted on 7 January 2004 a lengthy defence plea in this proceeding. In addition AUA filed on 17 October 2004 an application at the national cartel court under national competition law because of abuse of a dominant position by KFBG. KFBG was therefore facing strong legal opposition of AUA while trying to enforce its claims of payment of the full airport charges by AUA.

(301)

At the same time, the economic situation of KFBG was seriously affected by the outstanding airport charges and the length of the ongoing dispute. The reports of the supervisory board of KFBG (53) demonstrate that the outstanding airport charges had a very negative impact on the liquidity of KFBG and that as a consequence the shareholders of KFBG were obliged to give KFBG a grant of EUR […]. This need for cash is confirmed from the cash flow statements of KFBG of the years 2003-2005.

(302)

As the legal documents of the proceeding show, there was no possibility for KFBG to request a preliminary injunction against AUA for payment, as the conditions for this legal instrument were not fulfilled in the situation of KFBG. At the same time, AUA refused to pay the total amount of turnaround fees as it claimed that these turnaround fees were much higher than the turnaround fees Ryanair was paying at the same time at KLU. AUA claimed equal treatment with Ryanair and based its alleged right to equal conditions with Ryanair on several arguments: KLU's obligation to contract and its duty for equal treatment; KLU's abuse of a dominant position and the protection against unfear competition. Moreover AUA claimed that KLU had violated § 63 Luftfahrtgesetz National Aviation Act, hereinafter ‘LFG’) and § 20 Zivilflugplatz-Betriebsordnung (Civil Airport Operating Regulation, hereinafter ‘ZFBO’). According to § 63 LFG civil airports have to be made accessible under the same conditions to all participants of aviation. According to § 20 ZFBO the airport fees have to be based on objective characteristics. As these legal arguments were prima facie not completely unfounded, KFBG could not be sure that AUA would lose the civil law proceeding at the local district court.

(303)

Moreover, as the correspondence between KFBG and AUA in the two legal proceedings demonstrates, AUA threatened KFBG during the proceedings to discontinue serving KLU as an AUA destination. The AUA service between Klagenfurt und the Austrian capital Vienna was and still is the most important air service connection for KLU. It was therefore essential for KFBG to maintain its regular connection to the AUA hub of Vienna. As a consequence of this threat, KFBG searched in 2004 and 2005 for alternative airlines to ensure a flight connection to Vienna in case AUA would indeed stop its services to KLU.

(304)

As Austria declared, KFBG did not manage to find another alternative airline that would offer similar services as AUA between KLU and Vienna airport. The discontinuation of the services of AUA would have meant for KLU to lose its main airline which would have led to liabilities exceeding the assets.

(305)

Upon request by the Commission, Austria produced a detailed reconstructed ex ante analysis of the financial situation of KFBG on 20 October 2005.

Table 8

Reconstructed ex ante analysis of four different scenarios between KFBG and AUA

(306)

In preparing the analysis in Table 8, Austria took the following considerations into account. The analysis presents four different scenarios and their respective financial results for KFBG:

(307)

The Commission takes note, that only the last three scenarios were possible alternatives for KFBG in the situation of the litigations with AUA, as the first scenario was only of theoretical nature. Out of these three scenarios however only the third scenario seemed to be a reasonable alternative for a MEO being in the situation of KFBG. In the fourth scenario in which KFBG would not have signed the settlement agreement and AUA would have continued to pay only part of the airport charges, the financial situation of KFBG and its liquidity would have further deteriorated. In comparison with the other scenarios the scenario four would have led to a clear negative cash flow for the future of KFBG. Even worse would have been the result in scenario two, in case AUA would have discontinued its services to KLU as a result of not signing the settlement agreement and continuation of the litigations. In this scenario the cash flow would have been even worse for KFBG for the future.

(308)

In light of these considerations, the Commission notes that the third scenario was the only reasonable scenario to choose for a MEO in the situation of KFBG in October 2005. The third scenario meant that AUA would pay the airport charges due, but not the full amount, i.e. only EUR […] of the total debt of EUR […]. A MEO would have taken the partial losses of the airport charges into account in evaluating the positive effects of the settlement agreement: Due to the settlement agreement nearly two thirds of the total debt would be paid by AUA, leading to a positive cash flow in the future, removing the liquidity problems of KLU and assuring at the same time the continuation of the regular air services of AUA at KLU. The expected discounted result of the third scenario was positive.

(309)

Therefore, the Commission concludes that from an ex ante perspective, a private MEO would have signed the settlement agreement instead of choosing one of the other alternatives.

(310)

The Commission finds that KFBG/DMG acted like a MEO in concluding the settlement agreement with AUA. Therefore, the decision to conclude the settlement agreement did not grant AUA any economic advantage and does not constitute State aid within the meaning of Article 107(1) TFEU.

(311)

Ryanair provides air transport services. LV and AMS provide marketing services. Providing such services is an economic activity. Ryanair, LV and AMS therefore constitute undertakings within the meaning of Article 107(1) TFEU.

(312)

In order to constitute State aid, the measures in question have to be financed from State resources and the decision to grant the measure must be imputable to the State. For the criteria used to assess the existence of State resources and imputability to the State reference is made to recitals 224 to 232.

(313)

The Commission notes that KFBG/DMG are owned 100 % by the State. Until 2003 the shares of KFBG/DMG were held by the Republic of Austria 60 %, the State of Carinthia 20 % and Klagenfurt city 20 %. In April 2003 the State of Carinthia took over the shares of the Republic of Austria. Since 2003 the shares were therefore held by the State of Carinthia 80 % and Klagenfurt city 20 %. KFBG/DMG must thus be considered public undertakings within the meaning of Article 2(b) of Commission Directive 2006/111/EC (54) whose funds are State resources.

(314)

The 2002 agreements with Ryanair, AMS and LV are also imputable to the State. First, this was declared by Austria with the explanation that the State of Carinthia was involved in the conclusion of all marketing agreements between KFBG/DMG and the airlines. More generally, the State of Carinthia was kept informed about the evolution related to all agreements via the management and supervisory boards of KFBG and DMG. The State of Carinthia saw the conclusion of the different agreements as being in the interest of Carinthia. Second, the State of Carinthia financed the marketing costs occurred through the marketing agreements concluded by KFBG/DMG.

(315)

Austria also explicitly confirmed this involvement with reference to the 2002 agreements with Ryanair and AMS. This participation and involvement of the government in the 2002 agreements is further confirmed by the minutes of the meetings of the government of the State of Carinthia, in which the conclusion of the air service agreements as well as the marketing agreements were discussed (55).

(316)

Further, the costs of these 2002 agreements were borne by the State of Carinthia and the City of Klagenfurt (see Section 7.1), a financing by the State which was agreed prior to the conclusion of the agreement with the airline and which required that the State of Carinthia at least implicitly agrees with the agreements.

(317)

The organic structure and influence chain is a further indicator of imputability of the conclusion of the agreement package to the State. As described in recitals 228 to 232, the decisions of the State of Carinthia and the city of Klagenfurt were imputable to the State. Both shareholders of KFBG appointed the supervisory board of KFBG/DMG (which in turn appointed the management) with the result that the supervisory board (and management) of KFBG also represented the proportions of the political parties represented in the government of the State of Carinthia. The state of Carinthia and the city of Klagenfurt, as the sole shareholders of KFBG/DMG and by appointing the supervisory boards of KFBG/DMG (which in turn appoint the management), can be presumed to have a dominant influence over KFBG/DMG, and can control its resources.

(318)

When concluding the agreements with Ryanair, KFBG also actively represented the State of Carinthia's interest in the existence and maintenance of a viable and performing airport at Klagenfurt for the State of Carinthia.

(319)

Austria confirmed that the agreements concluded between KFBG/DMG and Ryanair and its subsidiaries are imputable to the State of Carinthia in the sense of the Stardust Marine  (56) jurisprudence.

(320)

In the light of these considerations, the Commission considers that there are sufficient indicators to find that the conclusion of the 2002 agreements between KFBG/DMG and Ryanair/LV/AMS are imputable to the State.

(321)

With regard to the application of the MEO principle reference is made to the description at recitals 261 to 278 above.

(322)

In order to apply this principle, taking into account the facts of this case, the Commission considers that the first step should be to address the following issues:

(323)

After addressing the above issues, the next step for the Commission will be to apply the MEO principle to the 2002 agreements with Ryanair, LV and AMS.

(324)

The Commission considers that in applying the MEO test, two types of measures covered by the formal investigation in this case, namely the airports service agreement and the three marketing services agreements, must be evaluated together as one single measure. This approach concerns the airport services agreement concluded between Ryanair and KFBG, on the one hand, and the marketing services agreements between DMG and LV as well as AMS, on the other hand.

(325)

There are several indications pointing towards the fact that those agreements should be evaluated as one single measure since they were entered into within the framework of a single transaction.

(326)

First of all, the contracts were entered into by essentially the same parties:

(327)

Second, the four agreements were also all concluded at the same point in time, as they were all four signed on 22 January 2002.

(328)

Third, the airport services agreement between Ryanair and KFBG refers directly to the marketing payments of EUR […] per year by DMG to Ryanair's duly authorised professional media consultants, i.e. LV: ‘KLU shall procure the payment by DMG to Ryanair's duly authorised professional media consultants of an amount of […] Euro per annum, in respect of the daily rotation of the Services commenting on 27 June 2002[…]’. This statement clearly links the marketing payments to the daily services of Ryanair.

(329)

Fourth, according to the first marketing agreement, ‘in case the airport services should fall below the stated minimum level in any quarter, DMG shall be entitled to inform LV forthwith in writing that it intends to suspend payment of the amounts […] and that if the service level has not been restored to such minimum level during such quarter this Agreement shall terminate forthwith[…]’ This demonstrates yet again that the marketing services agreement and the airport services agreement are inseparably linked.

(330)

Fifth, the minutes of the meetings of the government of State of Carinthia show that the government of Carinthia evaluated signing the various agreements as one operation. The decision to conclude a marketing contract with LV/AMS was directly linked to the decision to conclude also an airport services agreement with Ryanair (57).

(331)

In conclusion, the marketing services agreements concluded by DMG and LV as well as AMS are indivisibly linked to the airport service agreement signed by Ryanair and KFBG. The above considerations demonstrate that without the airport services agreement, the marketing services agreements would not have been concluded. Indeed, the marketing services agreements state explicitly that they are based on a new airport service form the United Kingdom to Klagenfurt, and essentially envisage marketing services using the travel website www.ryanair.com aimed at promoting that service. At the same time, it appears that the conclusion of the airport services agreement was also closely linked to the marketing services agreements: under the obligations of Ryanair the airport services agreement states that ‘Ryanair, in conjunction with DMG, will produce a periodic marketing plan for the services for discussion with information of KLU […] linking the appropriate tourist websites to Ryanair's website and incorporating appropriate logos whenever feasible.’ This statement clearly links the airport services agreement with the marketing agreements of DMG and AMS as well as LV of the same date.

(332)

These elements of the various marketing services agreements show that the marketing services stipulated in these agreements are, in terms of both their duration and their nature, closely linked to the air transport services offered by Ryanair, as defined in the marketing services agreements and covered by the corresponding airport services agreement. The marketing services agreements even indicate that they are rooted in Ryanair's commitment to operate the transport services in question. The marketing services agreements are therefore indissociable from the airport services agreement that they echo and that forms their purpose.

(333)

For those reasons, the Commission considers it appropriate to analyse the airport services agreement and the marketing services agreements of 22 January 2002 jointly, with a view to determining whether they constitute State aid.

(334)

Austria has agreed in its comments to the extension decision with the approach taken in the extension decision to analyse together the airport services agreement and marketing services agreements signed at the same time.

(335)

On the other hand, certain interested parties, particularly Ryanair and AMS, question this approach as they consider that the marketing services agreements should be analysed separately. In its comments to the extension decision Ryanair objected to the joint assessment of the airport services agreements and the marketing services agreements (referring also to previous submissions on that subject) (58) as they were signed by different entities and were not linked with each other. Ryanair claimed that the conclusion of a marketing agreement was not a condition for the operation of routes by Ryanair to and from an airport. This approach however is not in line with a statement of Sean Coyle, a director of Ryanair, in an email of 4 August 2005 to Mr Johannes Gatterer, CEO of KFBG at the time: ‘[…]the operation is currently loss making and these losses are not sustainable into the future. I appreciate you have 5-year agreement in relation to the marketing amount of EUR […] and naturally on cessation of the services no further quarterly payment falls due and this agreement ceases in line with main contract[…]’ (59). This statement clearly links the marketing services agreement to its main contract, the airport services agreement.

(336)

Moreover, the facts on record confirm that the approach taken in the extension decision and approved by Austria, is well-founded as it has been demonstrated in recitals 324 to 333 et seq. Therefore, the airport service agreements and marketing services agreements should be assessed jointly.

(337)

Austria also submitted in its comments to the extension decision, that the second marketing services agreement between DMG and AMS of 22 January 2002 was never executed by the parties. Austria claimed that this agreement never materialised, i.e. AMS never undertook the marketing services mentioned therein and DMG never paid for these services EUR […] per annum as stipulated in the agreement. As proof for this statement, Austria submitted a letter of the tax consultant of DMG stating that following intensive research in the book keeping of the years 2002-2005 no trace could be found of a payment of EUR […] per annum on the basis of the second marketing services agreement. Austria could however not reply to the question why the third marketing services agreement supposedly was to replace the second marketing services agreement, as there is no documentation available from that time in the archives of KFBG and no employee available of that time that could reconstruct the events that led to the signature of the third marketing services agreement. Ryanair has not supported this argument in its submission of comments to the extension decision, as it has not mentioned an eventual replacement of the second marketing services agreement.

(338)

The Commission notes that in the wording of the third marketing is no indication that it replaces or supersedes the second marketing agreement.

(339)

As there is no documentation on the alleged replacement apart of the attestation of the absence of a payment on the grounds of the second marketing services agreement, the Commission comes to the conclusion that the evidence available does not prove Austria's view. Moreover, the Commission notes, that even when assuming that the second marketing services agreement was never executed, this would have no impact on the assessment of the costs that a reasonable MEO would have expected: there was no reason that a reasonable MEO would have expected at the moment of the signature of the three marketing services agreements that one of them would not be executed in the future. Therefore, even when assuming that the second agreement indeed was not executed this would not have any impact on the assessment of the incremental costs.

(340)

In order to be able to apply the MEO principle to the case at hand, the behaviour of KFBG/DMG as signatories of the airport services agreement with Ryanair and the marketing services agreements with AMS and LV must be compared to that of a hypothetical MEO in charge of operating KLU.

(341)

When analysing the transaction in question, it is necessary to assess the benefits that this hypothetical MEO, motivated by the prospect of profits, could gain from purchasing marketing services. This analysis should not take into account the general impact of such services on tourism and the region's economic performance. Only the impact of these services on the airport's profitability should be taken into account, as this would be the only concern for a hypothetical MEO.

(342)

Thus, marketing services should stimulate passenger traffic on the air routes covered by marketing services agreements and the corresponding airport services agreements, as the marketing services are designed to promote those air routes. An increase in passenger traffic may lead to an increase in revenues generated by certain airport charges for the airport operator, as well as an increase in non-aeronautical revenues, in particular from car parks, restaurants and other businesses.

(343)

There can therefore be no doubt that an MEO operating KLU in the stead of KFBG/DMG would have taken this positive effect into account when considering entering into the marketing services agreements and the corresponding airport services agreement. The MEO would have taken into account the impact of the air route in question on future revenues and costs by, in this case, estimating the number of passengers using these routes, which would have reflected the positive effect of marketing services. Moreover, this effect would have been evaluated for the entire term of operation of the air routes in question, as set out in the airport services agreement and the marketing services agreements.

(344)

When an airport operator enters into an agreement for the promotion of certain air routes, it is standard practice to estimate the load ratio (or the load factor) (60) for the air routes in question and to take this into account when assessing future revenues. The Commission agrees with Ryanair on this issue, that is to say, that marketing services agreements do not just generate costs for the airport operator, they also bring benefits with them.

(345)

In addition, it has to be determined whether other benefits could reasonably be expected and quantified for a hypothetical MEO operating KLU in the stead of KFBG/DMG, that is to say, other than the benefits from the positive effect on passenger traffic on the air routes covered by the marketing services agreement during the term of operation of these routes, as set out in the marketing services agreements or the airport services agreement.

(346)

Certain interested third parties (61) support this argument, in particular Ryanair in its study of 17 January 2014. The study of 17 January 2014 is based on the theory that marketing services acquired by an airport operator, such as KFBG/DMG, will help to improve the airport's brand image and, as a result, to sustainably increase the number of passengers using the airport and not just the numbers on the air routes covered by the marketing services agreements and the airport services agreement for the term of operation set out in those agreements. In particular, Ryanair found in its study that the marketing services will have sustainable positive effects on passenger traffic in the airport even after the marketing services agreements have expired.

(347)

It should first be noted that there is nothing to suggest that, when the marketing services agreements were entered into, the airport operator ever considered, still less quantified, the marketing services agreements' possible beneficial effects on air routes additional to those covered by the agreement, or the possibility of such effects continuing after the agreements had expired. Moreover, Austria did not suggest any method for estimating the possible value that a hypothetical MEO operating KLU in the stead of KFBG/DMG could have placed on such effects when assessing whether to enter into the agreements in 2002.

(348)

In addition, the sustainable nature of these effects cannot be assessed based on the information available. It is possible that advertising Klagenfurt and the region on Ryanair's internet site may have encouraged people visiting that site to buy Ryanair tickets to Klagenfurt when the advertising was first posted or just thereafter. However, it is unlikely that the effect of the advertising on visitors lasted or had an influence on plane ticket purchases for more than a few weeks after it was posted on the Ryanair internet site. An advertising campaign is more likely to have a sustainable effect when the promotional activities involve one or more advertising media to which consumers are regularly exposed over a given period. For example, an advertising campaign involving general TV and radio stations, popular internet sites and/or various advertising posters displayed outside or inside public places could have a sustainable effect if consumers are regularly exposed to those media. However, promotional activities limited to just Ryanair's internet site are unlikely to have an effect that lasts much past the end of that promotion.

(349)

Thus, even if the marketing services increased passenger traffic on the air routes covered by the marketing services agreements for the period of their implementation, it is likely that this effect was negligible after that period and that the effect on other air routes was similarly insignificant.

(350)

It also follows from the Ryanair studies of 17 and 31 January 2014 that the generation of benefits going beyond the air routes covered by marketing services agreements or lasting after the period of their implementation for these routes, as set out in the marketing services agreements and airport services agreement, was extremely uncertain and could not be quantified with a degree of reliability that would be considered sufficient by a prudent MEO.

(351)

Thus, for example, according to the study of 17 January 2014, ‘future incremental profits beyond the scheduled expiry of the airport services agreement are inherently uncertain’. Moreover, that study suggests two methods for evaluating the positive effects of marketing service agreements: a ‘cash flow’ approach and a ‘capitalisation’ approach.

(352)

The ‘cash flow’ approach involves evaluating the benefits of marketing services agreements and airport services agreements by assessing the future revenues which may be generated by the airport operator through marketing services and the airport services agreement, minus corresponding costs. In the ‘capitalisation’ approach, improvement of the brand image of the airport through marketing services is treated as an intangible asset, acquired for the price laid down in the marketing services agreement.

(353)

However, the study highlights the major difficulties presented by the ‘capitalisation’ approach and shows that the results produced by this method may be unreliable; it suggests that the ‘cash flow’ approach would be better. In particular, the study finds:

‘The capitalisation approach should only take into account the proportion of marketing expenditure that is attributable to the intangible asset base of an airport. However, it may be difficult to identify the proportion of marketing expenditure that is targeted towards generating expected future revenues for the airport (i.e. an investment in the intangible asset base of the airport) as opposed to generating current revenues for the airport.’

It also stresses that:

‘In order to implement the capitalisation-based approach, it is necessary to estimate the average length of time that an airport would be able to retain a customer due to the AMS marketing campaign. In practice, it would be very difficult to estimate the average period of customer retention following an AMS campaign due to insufficient data.’

(354)

The study of 31 January 2014 proposes a practical application of the ‘cash flow’ approach. Under this approach, the benefits of marketing services agreements and airport services agreements which last even after the marketing services agreement has expired are expressed as a ‘terminal value’ that is calculated on the agreement's expiry date. This terminal value is calculated based on the incremental profits expected from the airport services agreement and marketing services agreement in the final year of application of the airport services agreement. Those profits are extended into the following period, the term of which is equal to the term of the airport services agreement, and are adjusted to take into account the growth rate for the air transport market in Europe and the probability factor designed to reflect the airport services agreement's and marketing services agreement's capacities to contribute to the airport's profits after they have expired. According to the study of 31 January 2014, the capacity for producing lasting benefits depends on various factors ‘including greater prominence and a stronger brand, alongside network externalities and repeat passengers’, although no details are given about these factors. Moreover, this method takes into account a discount rate which reflects capital costs.

(355)

The study suggests a probability factor of 30 %, which it considers prudent. However, this very theoretical study does not provide any serious evidence for this factor, either quantitatively or qualitatively. It does not base itself on any facts relating to Ryanair's activities, air transport markets or airport services to substantiate this rate of 30 %. It does not establish any link between this rate and the factors that it mentions in passing (prominence, strong brand, network externalities and repeat passengers) and that are supposed to extend the benefits of the airport services agreement and market service agreement after their expiry dates. Finally, it does not in any way base itself on the specific content of marketing services provided for in the various contracts with AMS when analysing to what extent those services could influence those factors.

(356)

Moreover, it does not prove that there is any likelihood that, on expiry of the airport services agreement and the marketing services agreements, the profits generated by these agreements for the airport operator in the final year of their application will continue in the future. Likewise, it provides no evidence that the growth rate of the air transport market in Europe is a useful indicator for measuring the impact of an airport services agreement and marketing services agreements for a given airport.

(357)

A ‘terminal value’ calculated using the method suggested by Ryanair would therefore be highly unlikely to be taken into account by a prudent MEO when deciding whether to enter into an agreement.

(358)

The study of 31 January 2014 therefore shows that a ‘cash flow’ approach would only lead to very uncertain and unreliable results, as would the ‘capitalisation’ method.

(359)

Moreover, neither Austria nor any interested third party has provided any evidence that the method put forward by Ryanair in the study of 31 January 2014, or any other method aiming to quantify the profits after expiry of airport services agreements and marketing services agreements, has been successfully implemented by regional airport operators comparable to Klagenfurt's operator. Austria has not made any comments on the studies of 17 and 31 January 2014.

(360)

Moreover, a terminal value calculated using the method put forward by Ryanair is only positive (and, therefore, only tends to increase the profitability of the airport services agreement and marketing services agreements) if the incremental profit expected from these agreements in the final year of application of the airport services agreement is positive. If it is negative, taking the terminal value into account will usually reduce the profitability of the agreements. It will be demonstrated below that the 2002 agreements resulted in negative incremental cash flows.

(361)

Moreover, as stated above, the marketing services target the route covered by the marketing services agreement. If this route is not renewed on expiry of the airport services agreement, it is unlikely that marketing services will continue to have a positive effect on passenger traffic at the airport after the expiry date. It is very difficult for an airport operator to assess the likelihood of an airline continuing to run a route on expiry of the term to which it has committed itself in the airport services agreement. Low-cost airlines, in particular, have shown that, when it comes to opening and closing routes, they are very responsive to market conditions which, more often than not, change very quickly. Therefore, when entering into a transaction such as the one being examined in this case, a prudent MEO would not rely on an airline company extending the operation of the route in question on expiry of the agreement.

(362)

To conclude, in light of the arguments presented above, the only benefit that a prudent MEO would expect from a marketing services agreement, and which it would quantify when deciding on whether to enter into such an agreement, together with an airport services agreement, would be that the marketing services would have a positive effect on the number of passengers using the routes covered by the agreements in question for the term of operation of those routes, as set out in the agreements. The Commission considers that any other possible benefits are too uncertain to be quantified and taken into account and that no such benefits have been concretely demonstrated in the present case.

(363)

Regarding the feasibility of a comparison versus the ex ante analysis of incremental profitability of the 2002 agreements, reference is made to the assessment under recitals 262 to 278.

(364)

Regarding the comparison of KLU with other airports, Ryanair submitted the Oxera study of 4 July 2011. This study was limited to a comparison between charges paid by Ryanair at […] and […] and airports, and the charges paid by Ryanair under the airport services agreements at KLU. That study did not factor in the specific marketing services agreements (62) at KLU in comparison to those possibly offered in other airports. However, for each route covered by the agreements at issue the relevant marketing services agreement had to be assessed jointly with the corresponding airport services agreement. As such, the elements invoked in the Oxery study of 4 July 2011 did not fulfil the most basic requirement for benchmarking, namely a ‘sufficiently precise definition of the economic activities concerned’ so that comparable market operators could be identified.

(365)

In addition, the Oxera study of 4 July 2011 did not establish a dependable point of reference for market prices of airport services. Although the study describes the chosen comparator airports as ‘majority privately owned and funded, or otherwise operating as market economy investors’, […] airport is owned by Manchester Airports Group, which itself has majority State ownership, while the Oxera study of 4 July 2011 does not claim that […] airport is operated on a market economy basis. As for […] Airport, the study states that the airport has consistently been privately owned, but omits to mention that […] airport was loss-making before it was sold in 2013, a factor which would call into question whether the low airport charges invoked as a point of reference in this case were sustainable for a MEO.

(366)

It is clear from all the above that, in order to apply the MEO test to the agreements in question, the Commission must analyse each marketing services agreement together with the corresponding airport services agreement, and must assess whether a hypothetical MEO, motivated by the prospect of profits and operating KLU in place of KFBG, would have entered into these transactions. To this end, the Commission must determine the incremental profitability of the agreements as it would have been assessed by the MEO at the time of their conclusion, by estimating, for the entire period of application of the agreements:

(367)

These calculations will provide the future annual flows corresponding to the difference between incremental revenues and costs, which are to be discounted, if necessary, by a rate reflecting the cost of capital for the airport operator. A positive net present value indicates in principle that the agreements in question do not confer an economic advantage, whereas a negative net present value reveals the presence of such an advantage.

(368)

When deciding on whether to enter into an airport services agreement and/or a marketing services agreement, a MEO will choose a time frame for its assessment based on the term of the agreements in question or the term set in each individual agreement. In other words, it will assess the incremental costs and revenues for the term of application of the agreements.

(369)

There does not seem to be any justification for choosing a longer period. On the date of signature of the agreements, a prudent MEO will not count on the agreements being renewed once they have expired, whether under the same or new terms. Moreover, a generally prudent operator would be aware that low-cost airlines such as Ryanair have always been and are known for being very responsive to market developments, both when starting up or shutting down routes and when increasing or decreasing the number of flights.

(370)

As a time frame for an assessment of the agreements in question a MEO would have chosen as a starting point the date of the simultaneous signature of all four agreements, i.e. the 22 January 2002. As an end date a MEO would have taken the end date as stipulated in each agreement. This was after a period of 5 years, i.e. 26 June 2007 in case of the airport services agreement between Ryanair and KFBG and of the first marketing agreement between DMG and LV. In case of the second marketing agreement between DMG and AMS the agreement entered into force for a 5-year initial term, i.e. until 21 January 2007. The third marketing agreement between DMG and LV indicated no precise duration, but had as main purpose the one-off payment of EUR […] by DMG to LV on 1 May 2002. Therefore 1 May 2002 would mark the end of the application of the agreement.

(371)

The possibility to extend the agreements as foreseen in two of the agreements would not be taken into consideration by a prudent MEO. The extension of the agreements was automatic under the condition that Ryanair fully complied with its obligations as set out in the agreement. The extension was thus dependant on Ryanair's future behaviour and for that reason, on the date of signature a prudent MEO in the same situation as KFBG would not have been in a position to expect that this automatic extension would necessarily take place. This view seems to be confirmed by the fact that all four agreements between KFBG, DMG, Ryanair, LV and AMS ended ahead of time on 29 October 2005, when Ryanair stopped to operate the passenger air services between KLU and STN due to economic reasons.

(372)

Even when taking into account a prolongation of the agreements for 5 further years, this would not lead to another result of an ex ante assessment. When assessing such prolongation under the same terms as for the first 5 years, it would lead to the same results, i.e. negative incremental cash flows.

(373)

For the purpose of assessing the agreements in question and given the above findings, it should be noted that both the existence and the amount of aid in these agreements have to be assessed in the light of the situation prevailing at the time they were signed and, more specifically, in the light of the information available and developments foreseeable at that time.

(374)

Austria asserts that KFBG/DMG did not prepare any ex ante market study, business plan or profitability calculation before concluding individual airport services agreements with various airlines, nor did it prepare any ex ante market study, business plan or profitability calculation before concluding individual marketing services agreements.

(375)

According to Ryanair, the lack of a business plan when agreements such as those covered by the formal investigation procedure are signed cannot be used as evidence that the MEO test is not satisfied.

(376)

The lack of a business plan indicates that the agreements signed with Ryanair, LV and AMS do not satisfy the MEO test, particularly as neither Austria nor KFBG have been able to provide, in respect of these agreements, any profitability calculation, even incomplete, that was carried out before the agreements were signed.

(377)

The Commission therefore invited Austria during the procedure to reconstruct the profitability analysis that an MEO would have carried out before signing the agreements with Ryanair, LV and AMS in 2002, based on the objective information known to KFBG/DMG when these agreements were signed and on the foreseeable developments.

(378)

Upon the Commission's request, Austria prepared an overview of the incremental costs and revenues that could have been expected at the time the relevant agreements were concluded. Austria prepared that data for each of the agreements concluded, as summarised in Table 9.

Table 9

Incremental profitability of contracts with Ryanair, LV and AMS of 2002 prepared by Austria

Calculation model

(379)

In preparing Table 9, Austria took the following considerations into account:

(380)

The Commission finds that the approach taken by Austria in estimating the passenger numbers and calculating on that basis the expected incremental aeronautical revenues is sound. The same holds true with respect to the incremental costs of the ground handling services by a third party and the costs for payments for Austro Control. Also the estimation of the incremental operating costs per rotation and per passenger as well as the discount rate of 8 % is estimated with a sound approach. According to the data available for the expected incremental traffic the statement of Austria regarding incremental investment costs seems also reasonable.

(381)

Having analysed the information provided by Austria, the Commission however disagrees in some of the points of the analysis and therefore will amend the analysis at the following points:

(382)

In view of these necessary amendments, the Commission has carried out its own analysis by using directly the incremental profitability analysis as submitted by Austria and amending this analysis only where necessary as summarised in Table 10.

Table 10

Incremental profitability of contracts with Ryanair, LV and AMS of 2002 as corrected by the Commission

Calculation model

(383)

As the expected discounted result is negative for the 2002 agreements with Ryanair, LV and AMS, the Commission finds that KFBG/DMG did not act like a MEO in concluding those agreements. The Airport could not have expected to cover the incremental costs brought about by those agreements. As KFBG/DMG did not behave like a MEO, its decision to conclude the agreements on those terms granted Ryanair, LV and AMS an economic advantage. Austria's argument that KFBG organised tenders to conclude agreements for the respective routes does not exclude the presence of the advantage as concluded by the Commission. A MEO operating an airport can in principle organise an open tender to offer financial incentives to an airline in order to increase traffic. A open tender may indeed be a suitable manner to maximise the profits generated by such incentives. However, if none of the bids submitted following such a tender can be expected by the airport operator to contribute, from an ex ante standpoint, to the profitability of the airport, then the MEO in question would not conclude any agreement even with the successful bidder, because it is not economically rational to conclude agreement reducing profits or increasing losses (63). If a public entity of a Member State decides to provide support, for public policy reasons, to a certain activity and tenders out, for example, the amount of funding provided, the mere fact that a tender is organised does not rule out the presence of State aid, but may only minimise the amount of aid (64).

(384)

The economic advantage was granted on a selective basis, as only one airline, namely Ryanair, benefitted from it.

(385)

In this context, the argument advanced by Austria that the discounts on airport charges granted to airlines flying from Klagenfurt were not selective must be rejected. Austria argued that the discounts were open to all airlines wishing to operate from Klagenfurt, which allegedly rendered them non-selective.

(386)

The Commission observes that the individual agreements concluded with Ryanair diverges from the schedule of charges and from agreements with other airlines, thus containing individually-negotiated conditions.

(387)

A measure granted by a State is considered to distort or to threaten to distort competition when it is liable to improve the competitive position of the recipient compared to other undertakings with which it competes. For all practical purposes, a distortion of competition is thus assumed as soon as a State grants a financial advantage to an undertaking in a liberalised sector where there is, or could be, competition. The case law of the European Courts has established that any grant of aid to an undertaking exercising its activities in the internal market can be liable to affect trade between Member States.

(388)

Since the entry into force of the third package on the liberalisation of air transport on 1 January 1993 (65), air carriers can freely operate flights on intra-European connections. As the Court of Justice has observed,

‘where an undertaking operates in a sector in which […] producers from various Member States compete, any aid which it may receive from the public authorities is liable to affect trade between the Member States and impair competition, inasmuch as its continuing presence on the market prevents competitors from increasing their market share and reduces their chances of increasing exports.’ (66).

(389)

The Commission has found that KFBG/DMG granted a selective advantage to Ryanair, LV and AMS. Ryanair with its subsidiaries is active on a competitive, Union-wide market and the advantage these undertakings received was liable to improve their competitive position on that market. In this light, the Commission finds that the advantage granted to Ryanair, LV and AMS is liable to distort competition and affect trade between Member States.

(390)

For the foregoing reasons, the Commission finds that Ryanair, LV and AMS have received State aid, amounting to EUR […] in net present value terms.

(391)

Ryanair provides air transport services. AMS provides marketing services. Providing such services is an economic activity. Ryanair and AMS are therefore undertakings within the meaning of Article 107(1) TFEU.

(392)

In order to constitute State aid, the measures in question have to be financed from State resources and the decision to grant the measure must be imputable to the State. For the criteria used to assess the existence of State resources and imputability to the State reference is made to recitals 224 to 232.

(393)

The Commission notes that KFBG/DMG are owned 100 % by the State. Until 2003 the shares of KFBG/DMG were held by the Republic of Austria (60 %), the State of Carinthia (20 %) and Klagenfurt city (20 %). In April 2003 the State of Carinthia took over the shares of the Republic of Austria. Since 2003 the shares were therefore held by the State of Carinthia (80 %) and Klagenfurt city (20 %). KFBG/DMG must thus be considered public undertakings within the meaning of Article 2 (b) of Directive 2006/111/EC whose funds are State resources.

(394)

The 2006 agreements with Ryanair, AMS and LV are also imputable to the State. For the general involvement of the State of Carinthia in the activities of the airport, in particular the conclusion of the marketing agreement with the airlines, see above reference (314) et seq.

(395)

Further, the Republic of Austria explicitly confirmed this involvement also with reference to the 2006 agreements with Ryanair and AMS.

(396)

In the light of these considerations, the Commission considers that there are sufficient indicators to find that the conclusion of the 2006 agreements between KFBG/DMG and Ryanair/AMS are imputable to the State.

(397)

Regarding the current lack of comparable airports and agreements and the ex ante analysis of incremental profitability of the 2006 agreements reference is made to the assessment under recitals 261 to 278.

(398)

Regarding the comparison of KLU with other airports, Ryanair submitted the Oxera study of 4 July 2011. This study was limited to a comparison between charges paid by Ryanair at […] and […] and airports, and the charges paid by Ryanair under the airport services agreements at KLU. That study made no attempt to factor in the specific marketing services agreements at KLU in comparison to those possibly offered in other airports. However, for each route covered by the agreements at issue the relevant marketing services agreement had to be assessed jointly with the corresponding airport services agreement. As such, the elements invoked in the Oxery study of 4 July 2011 did not fulfil the most basic requirement for benchmarking, namely a ‘sufficiently precise definition of the economic activities concerned’ so that comparable market operators could be identified.

(399)

In addition, the Oxera study of 4 July 2011 did not establish a dependable point of reference for market prices of airport services. Although the study describes the chosen comparator airports as ‘majority privately owned and funded, or otherwise operating as market economy investors’, […] airport is owned by Manchester Airports Group, which itself has majority State ownership, while the Oxera study of 4 July 2011 does not claim that […] airport is operated on a market economy basis. As for […] Airport, the study states that the airport has consistently been privately owned, but omits to mention that […] airport was loss-making before it was sold in 2013, a factor which would call into question whether the low airport charges invoked as a point of reference in this case were sustainable for a MEO.

(400)

The Commission considers that in applying the MEO test, the airport services agreement concluded between Ryanair and KFBG, on the one hand, and the marketing services agreement between DMG and AMS, on the other hand, must be evaluated together as one single measure.

(401)

Indeed, as for the 2002 agreements, there are several indications pointing towards the fact that the 2006 agreements should be evaluated as one single measure since they were entered into within the framework of a single transaction.

(402)

First, according to the marketing agreement, ‘this agreement is rooted in Ryanair's commitment to operate on a route between STN and KLU[…]’. This statement refers to the airport services agreement between Ryanair and KFBG and demonstrates yet again that the marketing services agreement and the airport services agreement are inseparably linked.

(403)

Second, the contracts were entered into by essentially the same parties. The Commission refers to recital 326 regarding the subsidiary AMS of Ryanair and regarding the subsidiary DMG of KFBG.

(404)

Third, according to both agreements they both lasted until 21 April 2007, i.e. they were in force for an identical period of time. This contemporaneous expiry of both agreements after the same period of time also shows that both agreements are linked and depended on each other.

(405)

In conclusion, the marketing services agreement concluded by DMG and AMS is thus indivisibly linked to the airport services agreement signed by Ryanair and KFBG. The above considerations demonstrate that without the airport services agreement, the marketing services agreement would not have been concluded. Indeed, the marketing services agreement states explicitly that it is based on a 3-a-week-service between STN and KLU, and essentially envisages marketing services using the travel website www.ryanair.com aimed at promoting that service between STN and KLU.

(406)

For those reasons, the Commission considers it appropriate to analyse the airport services agreement of 23 August 2006 and the marketing services agreement of 21 December 2006 jointly, with a view to determining whether they constitute State aid.

(407)

Austria has agreed in its comments to the extension decision with the approach taken in the extension decision to analyse together the airport services agreement and marketing services agreement signed at the same time.

(408)

On the other hand, certain interested parties, particularly Ryanair and AMS, question this approach as they consider that the marketing services agreement should be analysed separately. In its comments to the extension decision Ryanair objected to the joint assessment of the airport services agreements and the marketing services agreements (referring also to previous submissions on that subject) (67) as they were signed by different entities and were not linked with each other. Ryanair claimed that the conclusion of a marketing agreement was not a condition for the operation of routes by Ryanair to and from an airport.

(409)

The facts however confirm that the approach taken in the extension decision and approved by Austria, is well-founded as it has been demonstrated in recitals 324-333. Therefore the airport service agreement and the marketing services agreement should be assessed jointly.

(410)

A MEO will assess the incremental costs and revenues for the term of application of the agreements. This time frame seems realistic for the same reasons as set out in the recitals 368-369 above.

(411)

As a time frame for an assessment of the agreements in question a MEO would have chosen as a starting point the date of the signature of the marketing agreement on 21 December 2006, which complemented the airport service agreement. Both agreements ended on 21 April 2007.

(412)

The possibility to extend the agreements as foreseen in two of the agreements would not be taken into consideration by a prudent MEO. On the date of signature a prudent MEO would not have sufficient indications to rely on the agreements of a low-cost airline being renewed. The end date for the assessment would therefore be the 21 April 2007.

(413)

Regarding the assessment of the agreements in question reference is made to the findings in recitals 373 to 377.

(414)

Upon the Commission's request, Austria prepared an overview of the incremental costs and revenues that could have been expected at the time the relevant agreements were concluded. Austria prepared that data for each of the agreements concluded, as summarised in Table 11.

Table 11

Incremental profitability of contracts with Ryanair and AMS of 2006 prepared by Austria

Calculation