The European Commission has opened an in-depth investigation to assess whether the plan by the Spanish region of Valencia to grant €9 million of public support to regional airline Air Nostrum for the renewal of its fleet is in line with EU State aid rules.

Air Nostrum is a regional airline headquartered in Valencia (Spain). As part of its plans to boost the economic development of the region, the Regional Government of Valencia, in 2018, approved the granting of a subsidy of maximum €3 million to Air Nostrum. Furthermore, the regional government intends to grant an additional subsidy of maximum €6 million over the period 2019-2020. The measures are aimed at supporting the renewal of the airline's fleet through the acquisition of additional more environmentally friendly aircraft.

Spain argues that the measure falls under the environmental protection rules of the 2014 General Block Exemption Regulation (“GBER”) and that it does not therefore need to be notified for the Commission's assessment under State aid rules.

The GBER and the Guidelines on State aid for environmental protection and energy enable Member States to support measures that have a positive impact on the environment (for example because they reduce fuel consumption, noise or greenhouse gases). In order to be in line with EU State aid rules, however, these measures need to fulfil certain conditions to ensure that they have the intended positive effect on the environment. This includes that the support must incentivise private investment in the more environmentally friendly option, enable the beneficiary to increase the level of environmental protection from its activities, be kept to the minimum necessary and not unduly distort competition in the Single Market.

The Commission's investigation

At this stage, the Commission has doubts that the total intended aid support of €9 million to Air Nostrum falls within the GBER and complies with the Guidelines on State aid for environmental protection and energy. In particular:

• The Commission has doubts on whether the aid has an “incentive effect”. In this respect, the Commission will investigate whether the decision by Air Nostrum in 2017 to acquire 10 more fuel-efficient Bombardier CRJ-1000 aircraft was directly triggered by the support, in line with the requirements set out in the GBER and the Guidelines, or whether the investment in the more environmentally friendly option would have been carried out in any event, even absent the public support. Notably, Air Nostrum had already renewed its fleet with 18 Bombardier CRJ-1000 aircraft before 2017 without any State aid.
• Moreover, the GBER only applies to measures to support investments by the beneficiary airline. Under the GBER, for a leasing to qualify as an investment, the leasing contract needs to include the obligation (and not merely the option) to purchase the aircraft. The Commission has doubts at this stage that the type of leasing used by Air Nostrum meets this condition.

The Commission will now investigate further to determine whether or not these initial concerns are confirmed. The opening of an in-depth investigation provides all interested parties with an opportunity to comment on the measure. It does not prejudge in any way the outcome of the investigation.

Background

Investing in the renewal of a fleet by acquiring more environmentally friendly aircraft is in principle a good initiative which the Commission supports. Decisions by airlines to invest in a more environmentally friendly fleet can be driven not only by State aid, but by other factors, such as the fact that fuel-efficient planes also reduce the operating costs of airlines or by the independent decision by an airline to renew its fleet and replace older planes by more modern and more environmentally friendly ones. Granting aid in a context where a large company would have invested in any event in newer and greener planes would merely reduce the company's ordinary operating costs, which its (local) competitors have to meet without aid. This leads to competition distortions at the expense of taxpayers.

The GBER and the Guidelines on State aid for environmental protection and energy allow Member States to support measures in favour of environmental protection, if the aid respects certain conditions. Both the GBER and the Guidelines on State aid for environmental protection and energy require that:

• The aid must enable the beneficiary to increase the level of environmental protection resulting from its activities.
• The aid must have a real “incentive effect”, in other words it must effectively encourage the beneficiary to invest in a more environmentally friendly option.
• The aid must be kept to the minimum necessary to trigger the company's decision to invest in more environmentally friendly alternatives.
• The aid cannot have undue negative effects on competition in the market.

The non-confidential version of the decision will be made available under the case number SA.50707 in the State Aid Register on the Commission's competition website once any confidentiality issues have been resolved. New publications of state aid decisions on the internet and in the Official Journal are listed in the State Aid Weekly e-News.