The Court of First Instance has annulled the decision of the Commission authorising Compagnie Air France to receive public recapitalisation of FF 20 billion over the period 1994-1996 as part of its restructuring
The Court took the view that the Commission had failed to provide an adequate statement of reasons in regard to two essential points concerning, first, the purchase of 17 new aircraft for the sum of FF 11.5 billion and, second, Air France's resulting competitive position on long-haul, in particular transatlantic, routes and the effect which they would have on feeder traffic to the departure point at Paris Charles de Gaulle Airport. The remainder of the applicants' numerous substantive contentions were rejected.
The French authorities informed the Commission in March 1994 of their plan to inject FF 20 billion into the capital of Compagnie Nationale Air France. A restructuring plan was enclosed with that notification.
The Commission took the view that this increase in capital constituted State aid which distorted competition within the common market and the European Economic Area (EEA) and was in principle incompatible with the common market. A derogation may, however, be made to authorise such aid where it is designed to facilitate the development of certain economic activities and does not adversely affect trading conditions to an extent contrary to the common interest. Derogations granted by the Commission must be designed to restore the long-term competitiveness of an economic activity which is not affected by a crisis of structural overcapacity. The aid must promote structural changes and not preserve the status quo, which would have the effect of postponing unavoidable changes. In this regard, the Commission enjoys a broad discretion involving complex economic and social appraisals.
In its examination, the Commission accepted that a genuine restructuring of Air France would serve the common interest by contributing to the development of European air transport and improving Air France's competitiveness. The Commission also took the view that, in the light of the commitments made by the French Government, the amount of aid did not appear to be excessive for successfully accomplishing the restructuring plan and would not adversely affect trading conditions to an extent contrary to the common interest. The Commission concluded that the aid payable in three tranches and designed to ensure Air France's restructuring was compatible with the common market and the EEA Agreement, on condition that the French authorities complied with 16 commitments made when the decision was being drawn up.
It is that decision which has today been annulled by the Court of First Instance.
From a general point of view, the Court first pointed out that it is not its function to substitute its own economic assessment for that of the author of the decision but rather to verify whether the rules governing procedure and the statement of reasons have been complied with, whether the facts on which the contested finding was based have been accurately stated and whether there has been any manifest error of assessment or misuse of powers.
The annulment of the decision relates to two matters:
The applicant companies argued that it was disproportionate to approve aid for this purpose, where it could have been reduced by cancelling or postponing the orders for those aircraft. Furthermore, the costs of fleet modernisation - designed to maintain the company's competitiveness - form part of an airline's normal operating costs. What proves to be operating aid not compatible with the Treaty ought to be provided without State aid. The applicants also submitted that the Commission had provided inadequate reasoning on this point.
The Court pointed out that the statement of reasons required must disclose in a clear and unequivocal fashion the reasoning followed by the Community authority in such a way as to enable the Court to exercise its supervisory jurisdiction. Furthermore, in cases involving State aid, competing undertakings are entitled to be aware of the reasons for the decision in order to be able to defend their rights.
The Court stressed that the case-law of the Court of Justice and the Commission's practice reflect an opposition in principle to all operating aid intended to finance normal modernisation of installations. It took the view that it was not clear from the decision that the Commission had examined whether the modernisation of the Air France fleet could be partially financed by the aid in question - and, if so, for what reasons.
The applicants submitted that the aid would serve to lower Air France's costs artificially and would thereby shift the burden of cost adjustment on to other unsubsidised airlines, in particular with regard to air routes outside the EEA.
The Court considered that it was appropriate to ascertain whether the contested decision was adequately reasoned with regard to the assessment of the effects which the aid would have on the companies competing with Air France and on the relevant air routes. It pointed out that, with regard to the statement of reasons, the Commission took the view that the conditions accompanying the decision limited Air France's freedom and prevented it from pursuing an aggressive price policy on all the routes which it operated within the EEA. In contrast, the decision did not contain any indication as to the examination of that competitive position outside the EEA. The Commission did not verify the impact which the aid would have on air routes outside the EEA. In addition, the effects on feeder traffic to the departure hub for long-haul routes had to be examined by the Commission, since a number of small airline companies involved in feeder traffic might be adversely affected thereby.
This lack of a statement of reasons in regard to the consequences of the aid at the international level, in conjunction with that absence of explanations as to the possible effects on feeder traffic, accordingly led the Court to annul the decision on this point also.
It should be noted that all of the numerous substantive contentions - errors of law and of assessment - raised by the parties were rejected by the Court in a judgment of more than 100 pages. It is now for the Commission to reconsider the matter in order to adopt the measures which compliance with this judgment dictates.
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