JUDGMENT OF THE COURT OF FIRST INSTANCE (Fifth Chamber,Extended Composition)

30 April 1998 (1)

(Application for annulment — Air transport — State aid — Small amount —Distortion of competition — Effect on trade between Member States — Statementof reasons)

In Case T-214/95,

Het Vlaamse Gewest (Flemish Region), represented by Alfred L. Merckx, of theBrussels Bar, with an address for service in Luxembourg at the Chambers of Duroand Lorang, 4 Boulevard Royal,

applicant,

v

Commission of the European Communities, represented by Pieter Van Nuffel andAnders Christian Jessen, of its Legal Service, acting as Agents, with an address forservice in Luxembourg at the office of Carlos Gómez de la Cruz, of its LegalService, Wagner Centre, Kirchberg,

defendant,

APPLICATION for annulment of Commission Decision 95/466/EC of 26 July 1995concerning aid granted by the Flemish Region to the Belgian airline VlaamseLuchttransportmaatschappij NV (OJ 1995 L 267, p. 49),

THE COURT OF FIRST INSTANCE

OF THE EUROPEAN COMMUNITIES (Fifth Chamber, ExtendedComposition),

composed of: R. García-Valdecasas, President, V. Tiili, J. Azizi, R.M. MouraRamos and M. Jaeger, Judges,

Registrar: A. Mair, administrator,

having regard to the written procedure and further to the hearing on 25 September1997,

gives the following

Judgment

Legal background

1.

    Article 92(1) of the Treaty establishing the European Community (hereinafter 'theTreaty‘) reads as follows:

'Save as otherwise provided in this Treaty, any aid granted by a Member State orthrough State resources in any form whatsoever which distorts or threatens todistort competition by favouring certain undertakings or the production of certaingoods shall, in so far as it affects trade between Member States, be incompatiblewith the common market.‘

2.

    Article 92(3)(c) of the Treaty permits the Commission, by way of derogation, todeclare to be compatible with the common market 'aid to facilitate thedevelopment of certain economic activities or of certain economic areas, wheresuch aid does not adversely affect trading conditions to an extent contrary to thecommon interest‘.

3.

    On 20 May 1992 the Commission adopted Community guidelines on State aid forsmall and medium-sized enterprises (SMEs) (OJ 1992 C 213, p. 2). Point 3.2provides an exemption from the obligation of notification laid down by Article93(3) of the Treaty for aid in respect of a given type of expenditure of an absoluteamount of less than ECU 50 000 over a three-year period. Point 1.6, however,

excludes from the scope of those guidelines aid for enterprises in sectors subjectto special Community rules on State aid, one of which is the transport sector.

4.

    The Commission laid down the provisions applicable to State aid for undertakingsin the aviation sector in its communication 94/C 350/07 entitled 'Application ofArticles 92 and 93 of the EC Treaty and Article 61 of the [Agreement on theEuropean Economic Area] to State aids in the aviation sector‘ (OJ 1995 C 350, p.5, hereinafter the 'Aviation Guidelines‘). Point 50 (Chapter IX) of the AviationGuidelines confirms that the procedure for accelerated clearance of aid for SMEsdoes not apply to aid in the transport sector.

5.

    The Aviation Guidelines cover aid granted by Member States in favour ofCommunity air carriers (point 10, Chapter II). Point 51 (Chapter X) states that theCommission will apply the Aviation Guidelines as from their publication in theOfficial Journal of the European Communities and will decide at the appropriatetime on an update of them.

6.

    Point 8 (Section I.4.) includes the statement that the Commission 'wishes toestablish a level playing field on which the Community air carriers can effectivelycompete‘.

7.

    At point 14 (Chapter III), it is specifically stated: 'Direct aids aimed at coveringoperating losses are, in general, not compatible with the common market and maynot benefit from an exemption.‘

8.

    In Chapter V, which relates, inter alia, to exemptions for the development ofcertain economic activities which may be granted under Article 92(3)(c) of theTreaty and Article 61(3)(c) of the Agreement on the European Economic Area(hereinafter the 'EEA Agreement‘), the Aviation Guidelines provide thatrestructuring aid may be declared compatible with the common market only undercertain conditions. One such condition is that the aid must form part of acomprehensive restructuring programme to be approved by the Commission (point38(1) of the Aviation Guidelines). The programme to be financed by the State aidcan only be considered 'not contrary to the common interest‘ if its objective is notto increase the capacity and the offer of the airline concerned, to the detriment ofits direct European competitors (point 38(4)).

9.

    Finally, at point 50 (Chapter IX), in the interest of administrative simplification, theAviation Guidelines introduce an accelerated clearance procedure for small aidschemes in the aviation sector. It is explained that the Commission will apply amore rapid administrative clearance procedure to new or modified existing aidschemes notified pursuant to Article 93(3) of the Treaty if:

—    the amount of the aid given to the same beneficiary is not higher than ECU1 million over a three-year period,

—    the aid is linked to specific investment objectives, operating aids beingexcluded.

Factual background

10.

    Vlaamse Luchttransportmaatschappij NV (hereinafter 'VLM‘) is a private airlineestablished in Antwerp. It was set up on 21 February 1992 with an initial capitalof BFR 10 million. The capital was subsequently increased several times; itreached BFR 75 million at the end of 1993 and was increased to BFR 100 millionduring 1994. Since 1993 VLM has provided scheduled flights inter alia betweenAntwerp and London (London City Airport) and between Rotterdam and London(London City Airport).

11.

    The Antwerp-London route is also served by other airlines, in particular the Britishcompany Cityflyer Express Ltd (hereinafter 'Cityflyer‘), into and out of GatwickAirport.

12.

    On 17 December 1993, without prior notification to the Commission, the FlemishRegion granted VLM an interest-free loan of BFR 20 million, repayable in annualinstalments of BFR 4 million from the second year.

13.

    The contract granting the loan provides as follows:

'Artikel 1: Voorwerp

De begunstigde verbindt zich tot de verdere uitbouw en exploitatie van meerdereEuropese vliegroutes.

Ter ondersteuning van deze activiteit verleent het Gewest de begunstigde eenterugbetaalbaar renteloos voorschot.

...

Artikel 3: Voorwaarden

Voor de duur van het contract is voor de vervreemding of hypothekering vanonroerend en roerend patrimonium en het handelsfonds van de zaak alsook voorde vervreemding van bepaalde activa van de begunstigde vooraf instemming nodigvan het Gewest.

Bij wijziging van de aandeelhoudersstructuur is vooraf de instemming van hetGewest vereist.

Het kapitaal van de onderneming mag tijdens de duur van het contract niet wordenverlaagd zonder voorafgaande toestemming van het Gewest.

Indien deze voorwaarden niet worden nageleefd, is de overeenkomst onmiddellijkopzegbaar en wordt het voorschot onmiddellijk opeisbaar.

...‘

('Article 1: Subject-matter

The recipient undertakes to develop and operate several European air routes.

The Flemish Region grants the recipient a repayable interest-free loan in order tosupport that activity.

...

Article 3: Conditions

For the duration of the agreement, the prior consent of the Flemish Region isnecessary for the disposal of, or granting of security over, any moveable orimmoveable property or the goodwill of the business and for the disposal of certainassets of the recipient.

The consent of the Flemish Region is also required for any modification of theshareholding structure.

The share capital of the undertaking may not be reduced during the term of theagreement without the prior consent of the Flemish Region.

If these conditions are not complied with, the agreement may be terminatedimmediately and the loan is repayable forthwith.

...‘).

14.

    In response to a complaint by Cityflyer the Commission initiated the procedureunder Article 93(2) of the Treaty on 16 November 1994 (OJ 1994 C 359, p. 2).

15.

    Cityflyer and British Airways submitted comments. They asked the Commission todeclare that the interest-free loan constituted aid incompatible with the commonmarket.

16.

    On 23 January 1995 the Belgian Government also submitted comments.

17.

    At the end of the procedure, on 26 July 1995, the Commission adopted Decision95/466/EC concerning aid granted by the Flemish Region to the Belgian airlineVlaamse Luchttransportmaatschappij NV (hereinafter 'the contested decision‘).

That decision was notified to the Belgian Government on 25 September 1995 andwas published in the Official Journal on 9 November 1995 (OJ 1995 L 267, p. 49).

18.

    In that decision the Commission concluded that the loan granted by the FlemishRegion to VLM included an aid component which was unlawful because it wasgranted to the undertaking in breach of the requirements of Article 93(3) of theTreaty. It also considered that the aid component was incompatible with thecommon market for the purposes of Article 92 of the Treaty and Article 61 of theEEA Agreement (Article 1 of the contested decision). It consequently requiredBelgium to order that interest at the rate of 9.3% be paid on that loan (Article 2)and that the aid component, equal to interest charged at that rate on the amountborrowed since the date on which the loan was granted, be repaid (Article 3). Therate of 9.3% was obtained by adding together a base rate of 7.3% applicable toBelgian State debt in 1994 and a risk premium of 2% (last paragraph in ChapterV of the contested decision).

Procedure

19.

    The application initiating proceedings was lodged on 27 November 1995 andregistered the following day.

20.

    Upon hearing the report of the Judge-Rapporteur, the Court of First Instance(Fifth Chamber, Extended Composition) opened the oral procedure. The partiespresented oral argument and replied to the oral questions of the Court at thehearing on 25 September 1997.

Forms of order sought

21.

    The applicant claims that the Court should:

—    annul the contested decision; and

—    order the defendant to pay the costs.

22.

    The defendant contends that the Court should:

—    dismiss the application as unfounded; and

—    order the applicant to pay the costs.

23.

    At the hearing the defendant claimed that the application was inadmissible.

Admissibility

Arguments of the parties

24.

    According to the defendant, the action is inadmissible under the second paragraphof Article 173 of the EC Treaty because the applicant is not a Member State. Theapplication is also inadmissible under the fourth paragraph of Article 173 of theTreaty on the grounds that the applicant was not directly and individually affectedby the contested decision, which was not addressed to it. Furthermore, it does nothave an interest of its own in bringing proceedings in respect of the contesteddecision. Its interest in bringing proceedings is based on the fact that it granted theaid in question and, as such, is not distinct from that of the Belgian State (Case282/85 DEFI v Commission [1986] ECR 2469).

25.

    The applicant considers that, in its capacity as an autonomous legal person withpower to grant the loan in question, it is directly and individually concerned for thepurposes of the second paragraph of Article 173 of the Treaty in the same way asthe Kingdom of Belgium, to which the contested decision is addressed (JoinedCases 62/87 and 72/87 Exécutif Régional Wallon and Glaverbel v Commission [1988]ECR 1573).

Findings of the Court

26.

    The Court of First Instance has jurisdiction at first instance only in actions forannulment under the fourth paragraph of Article 173 of the Treaty (CouncilDecision 94/149/ECSC, EC of 7 March 1994 amending Decision 93/350/Euratom,ECSC, EEC of 8 June 1993 amending Decision 88/591/ECSC, EEC, Euratom of24 October 1998 establishing a Court of First Instance of the EuropeanCommunities (OJ 1994 L 66, p. 29)). It has no jurisdiction to take cognisance ofactions brought pursuant to the second paragraph of Article 173 of the Treaty bya Member State, the Council or the Commission.

27.

    According to the fourth paragraph of Article 173, any natural or legal person mayinstitute proceedings against a decision which, although in the form of a decisionaddressed to another person, is of direct and individual concern to the former.

28.

    In this case, the contested decision was addressed to the Kingdom of Belgium. Inthat respect, it should be noted that it is apparent from the general scheme of theTreaties that the term Member State, for the purposes of the institutionalprovisions and, in particular, those relating to proceedings before the courts, refersonly to government authorities of the Member States of the EuropeanCommunities and cannot include the governments of regions or autonomouscommunities, irrespective of the powers they may have (orders in Case C-95/97Région Wallonne v Commission [1997] ECR I-1787, paragraph 6 and C-180/97Regione Toscana v Commission [1997] ECR I-5245, paragraph 6). The FlemishRegion is therefore not entitled to bring proceedings pursuant to the second

paragraph of Article 173 of the Treaty. By contrast, since it has legal personalityunder Belgian national law it must, on that basis, be treated as a legal personwithin the meaning of the fourth paragraph of Article 173 of the Treaty (orders inRégion Wallonne v Commission, cited above, paragraph 11, and Regione Toscanav Commission, cited above, paragraph 11; see also the Opinion of AdvocateGeneral Lenz in Exécutif Régional Wallon and Glaverbel v Commission, cited atparagraph 25 above, ECR 1573, 1581, 1582).

29.

    The contested decision has a direct and individual effect on the legal position of theFlemish Region. It directly prevents it from exercising its own powers, which hereconsist of granting the aid in question, as it sees fit, and requires it to modify theloan contract entered into with VLM.

30.

    It follows that it has an interest of its own in challenging the decision. Its situationcannot be compared to that of the Committee for the Development and Promotionof the Textile and Clothing Industry in DEFI v Commission, cited at paragraph 24above. In that case, the French Government had the power to determine thatcommittee's management and policies and hence also to define the interests whichthat organisation had to protect (paragraph 18). In this case, however, it does notappear that the Belgian Federal Government is in a position to determine themanner in which the Flemish Region exercises its own powers, in particular thoseaccording it the discretion to grant aid to undertakings.

31.

    It follows from the foregoing that the application must be held admissible.

Substance

32.

    The applicant raises three pleas in law in support of its application, based on:

—    infringement of Article 92(1) of the Treaty;

—    infringement of Article 92(3)(c) of the Treaty; and

—    breach of the duty to state reasons laid down in Article 190 of the Treaty.

    The third plea falls into three parts:

    —    insufficient reasoning in the contested decision relating to theapplication of Article 92(1) of the Treaty (first part);

    —    insufficient reasoning rejecting the arguments concerning exemptionfor small aid schemes in the aviation sector (second part);

    —    insufficient reasoning relating to the application of Article 92(3)(c) ofthe Treaty (third part).

33.

    As the first two parts of the third plea are based on breach of the duty to statereasons as regards the conditions for application of Article 92(1) of the Treaty, theCourt will examine them immediately after the first plea.

The first plea: infringement of Article 92(1) of the Treaty

Arguments of the parties

34.

    The applicant considers that when the amount of the aid is so small that it does notstrengthen the recipient's competitive position with respect to that of itscompetitors on the relevant market, it does not distort competition or affect tradebetween Member States.

35.

    In this case, the amount of the aid was so insignificant that it had no impact onVLM's costs or tariff structure. The aid amounted to only a few Belgian francs perpassenger. Consequently it did not procure any benefit for VLM whichstrengthened its competitive position with respect to that of other airlines withwhich it competes on the intra-Community air transport market. Nor, it follows,is the aid likely to affect trade between Member States.

36.

    In the applicant's submission, in order to conclude that there was an effect on tradebetween Member States, the defendant should have established that the aid inquestion procured a benefit for VLM which strengthened its competitive position(in comparison with that of its competitors). However, it gave no indicationwhatsoever of how VLM had derived any benefit from the loan received.

37.

    First, the defendant's observations concerning the characteristics of the airtransport sector and the fact that it was informed of the aid by a complaint froma competitor is not relevant in that respect. Next, the fact that State aid is grantedto an undertaking whose activities by their very nature consist of trade betweendifferent Member States does not mean that the recipient derives a benefit fromit in comparison with its competitors. Furthermore, the applicant disputes that theoperation of the Antwerp-London City route by VLM discourages other companiesfrom operating that route themselves, since the market has been liberalised and theliberalisation measures provide for a special procedure for the grant of slots to newarrivals on the market. Finally, it denies that VLM was in financial difficultieswhen the loan was granted and even two years thereafter, since it is perfectlynormal for a new airline to incur losses connected with starting up.

38.

    The applicant concludes that the aid in question did not procure any benefit forVLM in comparison with competing companies, since the latter receive severalthousand million Belgian francs under restructuring programmes approved by theCommission or, like the complainant Cityflyer, are members of a franchise networkwhich enables them to be indirectly subsidised by the group to which they belong.

In that respect, the applicant cannot understand how the Commission can maintainthat an amount which it estimates at most at BFR 1 860 000 per annum, wouldenable VLM not to increase its fares, to maintain its position on the market withrespect to its competitors and to avoid greater losses and even insolvency.

39.

    Finally, the defendant infringed Article 92(1) of the Treaty by overestimating theamount of the aid. It calculated the aid on the basis of a risk premium of 2% onthe ground that the loan in question was not accompanied by any guarantee directlylinked to moveable or immoveable property. That risk premium should have been1%, since Article 3 of the loan contract granted the applicant the right to veto theconstitution of any security and the transfer of assets and authority to constitute afirst mortgage. Consequently the amount of the aid is equal to the total amountof interest resulting from application of a rate of 8.3% and not 9.3%.

40.

    The defendant claims that the plea should be dismissed and maintains that all theconditions for application of Article 92(1) of the Treaty were satisfied in this case. The loan in question was granted by a State authority (the Flemish Region) andprocured a benefit for its recipient with respect to its competitors in a sector wherecompetition is intense. It therefore distorts competition and affects trade betweenMember States, as a large proportion of European air transport is intra-Community, particularly in Belgium.

Findings of the Court

41.

    It is necessary to consider whether the defendant was justified in concluding thatthe aid in question distorted or threatened to distort competition and affected tradebetween Member States.

A — Distortion of competition

42.

    The aid in question is intended to facilitate the development and operation ofseveral European air routes (Article 1 of the loan contract; see paragraph 13above), on which the recipient competes with other airlines, including companiesestablished in other Member States. The loan contract does not therefore requirethe aid to be used to finance specific expenditure. The fact that no interest wascharged on the loan thus relieves VLM of normal costs which form an integral partof its day-to-day activity.

43.

    The Court of Justice and the Court of First Instance have held that operating aid,that is to say aid which, like the aid in question, is intended to relieve anundertaking of the expenses which it would normally have had to bear in its day-to-day management or its usual activities, in principle distorts competition (CaseT-459/93 Siemens v Commission [1995] ECR II-1675, paragraphs 48 and 77, and thecase-law cited therein).

44.

    In the fifth paragraph of Chapter V of the contested decision, the defendant stated:'In the present case, given the intense competition in the liberalised Communityair transport business, the fact that VLM may be the only airline operating on theAntwerp-London route into and out of London City Airport is irrelevant to theCommission's assessment: the aid received will in any event reduce the chances ofcompetitors, actual or potential, who wish to penetrate the market in that particularroute and will thus distort competition to that extent at least. Nor is there anythingto prevent VLM from making use of the assistance to launch operations on otherroutes.‘ In that respect, it should be noted that the applicant has not disputed thatthe air transport sector is highly competitive in the Community.

45.

    The applicant does not deny that the loan in question procured a benefit for VLMbecause it was granted on an interest-free basis. It denies, however, that thebenefit to VLM strengthened its competitive position in comparison with that ofcompeting airlines.

46.

    Where a public authority favours an undertaking operating in a sector which ischaracterised by intense competition by granting it a benefit, there is a distortionof competition or a risk of such distortion. Where the benefit is limited,competition is distorted to a lesser extent, but it is still distorted. The prohibitionin Article 92(1) of the Treaty applies to any aid which distorts or threatens todistort competition, irrespective of the amount, in so far as it affects trade betweenMember States.

47.

    It follows that it was legitimate for the defendant to consider that the aid inquestion distorted or threatened to distort competition.

B — Effect on trade between Member States

48.

    According to settled case-law, the relatively small amount of aid or the relativelysmall size of the undertaking which receives it does not as such exclude thepossibility that intra-Community trade might be affected (Case C-142/87 Belgiumv Commission [1990] ECR I-959, paragraph 43, and Joined Cases C-278/92,C-279/92 and C-280/92 Spain v Commission [1994] ECR I-4103, paragraphs 40 to42).

49.

    Even aid of a relatively small amount is liable to affect trade between MemberStates where, as here, there is strong competition in the sector in which therecipient operates (Cases 259/85 France v Commission [1987] ECR 4393, paragraph24, and C-303/88 Italy v Commission [1991] ECR I-1433, paragraph 27).

50.

    When State financial aid or aid from State resources strengthens the position of anundertaking compared with other undertakings competing in intra-Community

trade, the latter must be regarded as affected by that aid (Case 730/79 Philip Morrisv Commission [1980] ECR 2671, paragraph 11).

51.

    In this case, the defendant considered that 'the loan does distort competition, anddoes affect trade between Member States: it benefits a single company, whosebusiness — air transport — extends over several Member States and potentially overthe entire EEA, and which by its nature directly relates to trade. This isparticularly so since the entry into force of the third air transport package, on 1January 1993, which completed the process of liberalisation and greatly increasedthe scope for competition. VLM is a Community airline company holding anoperating licence granted in accordance with Council Regulation (EEC) No2407/92. Pursuant to Article 3 of Council Regulation (EEC) No 2408/92 andArticle 5 of Council Regulation (EEC) No 2409/92, the Member State or MemberStates concerned must, except where otherwise expressly provided in the sameRegulations, permit VLM to exercise traffic rights on routes within the Communityand setting its fares freely‘ (fourth paragraph of Chapter V of the contesteddecision).

52.

    Those considerations and those reproduced at paragraph 44 above are entirelyfounded. The aid in question benefits an undertaking which is geared tointernational trade, since it provides transport between towns situated in differentMember States and competes with airlines established in other Member States. Asstated in paragraph 42 above, it is designed to facilitate the development andoperation of European routes, so that its potential to affect trade between MemberStates is increased.

53.

    It follows that it was legitimate for the defendant to conclude that the aid inquestion affected trade between Member States.

C — Effect of aid granted to competitors of VLM

54.

    The fact that competitors of VLM receive State aid, even illegal aid, is irrelevantin classifying aid for the purposes of Article 92(1) of the Treaty. No breach by aMember State of an obligation under the Treaty in connection with the prohibitionlaid down in Article 92 can be justified by the fact that other Member States arealso failing to fulfil this obligation (Case 78/76 Steinike & Weinlig [1977] ECR 595,paragraph 24).

D — Calculation of the amount of the aid

55.

    The applicant's assertion that the defendant infringed Article 92(1) of the Treatyby overestimating the amount of the aid must be rejected. The applicant has failedto establish that, because of the rights deriving from Article 3 of the loan contract,

VLM would have been able to obtain the loan in question at 8.3% which, in itsopinion, is the rate which should have been applied.

E — Conclusion

56.

    In view of the foregoing, the applicant has not established that the defendantincorrectly applied Article 92(1) of the Treaty. The plea must therefore berejected.

The first part of the third plea: insufficient reasoning concerning the application ofArticle 92(1) of the Treaty

Arguments of the parties

57.

    The applicant points out that, according to settled case-law, the statement ofreasons required by Article 190 must disclose in a clear and unequivocal fashion thereasoning followed by the Community authority which adopted the measure inquestion, in such a way as to make the persons concerned aware of the reasons forthe measure and thus enable them to defend their rights and the Court to exerciseits power of review (Case C-350/88 Delacre and Others v Commission [1990] ECRI-395, and the case-law referred to therein, and Case T-95/94 Sytraval and Brink'sFrance v Commission [1995] ECR II-2651, paragraph 52).

58.

    In order to determine that aid distorts competition and affects intra-Communitytrade, the Commission must establish in a clear and unequivocal fashion that theaid benefitted the recipient in such a way as to enable it to strengthen its positioncompared to competitors in intra-Community trade (Philip Morris v Commission,cited at paragraph 50 above).

59.

    It is true that the contested decision demonstrates that it is not impossible that aid(even of a relatively small amount) may affect trade between Member States. However, it does not follow that the aid in question actually procures a significantcompetitive advantage for VLM, thus affecting trade between Member States. Thedefendant's reasoning was abstract, and did not take specific account of the modestamount of the aid, the particular characteristics of the aviation sector and the factthat VLM's share of the relevant market was minimal.

60.

    Finally, the decision did not indicate whether the defendant considered the impactof the aid in question on the structure of costs, fares or other aspects of VLM'soperation.

61.

    The defendant disputes that it is required to give such an extensive statement ofreasons and considers that the reasoning set out in the fifth and sixth paragraphs

of Chapter V of the contested decision entirely satisfies the requirements of Article190 of the Treaty. It therefore claims that this part of the plea should be rejected.

Findings of the Court

62.

    According to settled case-law, the statement of reasons required by Article 190 ofthe Treaty must disclose in a clear and unequivocal fashion the reasoning followedby the Community authority which adopted the measure in question, in such a wayas to make the persons concerned aware of the reasons for the measure and thusenable them to defend their rights and the Community judicature to exercise itspower of review (Case T-471/93 Tiercé Ladbroke v Commission [1995] ECR II-2537,paragraph 29 and the case-law cited therein, and Joined Cases T-551/93, T-231/94,T-232/94, T-233/94 and T-234/94 Industrias Pesqueras Campos and Others vCommission [1996] ECR II-247, paragraph 140 and the case-law cited therein).

63.

    It is not, however, necessary for the reasoning to go into all the relevant facts andpoints of law, since the question whether the statement of reasons meets therequirements of Article 190 of the Treaty must be assessed with regard not only toits wording but also to its context and to all the legal rules governing the matter inquestion (Case C-56/93 Belgium v Commission [1996] ECR I-723, paragraph 86;Case C-278/95 P Siemens v Commission [1997] ECR I-2507, paragraph 17; andCase T-266/94 Skibsvaeftsforeningen and Others v Commission [1996] ECR II-1399,paragraph 230). In giving its reasons for the decisions it takes in order to ensurecompliance with the rules on competition, the Commission is not obliged to adopta position on all the arguments relied on by the parties concerned. It is sufficientif it sets out the facts and legal considerations having decisive importance in thecontext of the decision (Case T-44/90 La Cinq v Commission [1992] ECR II-1,paragraph 41 and the case-law cited therein, and Siemens v Commission, cited atparagraph 43 above, paragraph 31).

64.

    When applied to the classification of aid, that principle requires the Commissionto indicate the reasons why it considers that the aid in question falls within thescope of Article 92(1) of the Treaty. In that respect, even in cases where it is clearfrom the circumstances in which the aid has been granted that it is liable to affecttrade between Member States and to distort or threaten to distort competition, theCommission must at least set out those circumstances in the statement of reasonsfor its decision (Case 57/86 Greece v Commission [1988] ECR 2855, paragraph 15,and Joined Cases C-329/93, C-62/95 and C-63/95 Germany and Others v Commission[1996] ECR I-5151, paragraph 52 and the case-law cited therein).

65.

    In this case, the defendant stated in the second paragraph of Chapter V of thecontested decision that the loan constituted aid within the meaning of Article 92(1)of the Treaty and Article 61(1) of the EEA Agreement. It is apparent from thecontested decision, particularly the first sentence of the fourth paragraph and thethird sentence of the fifth paragraph of Chapter V, the relevant extracts of which

are reproduced at paragraphs 51 and 44 above respectively, that the defendant'sassessment of the effects of the aid in question on competition and intra-Community trade was not merely abstract. As regards the condition concerningdistortion of competition, the contested decision states that the aid granted to VLMdistorts or threatens to distort competition because it reduces the chances forcompetitors to penetrate the market on the Antwerp-London route and increasesVLM's chances of capturing other markets, in a sector where competition isintense. As regards the condition concerning the effect on trade between MemberStates, the decision notes that, since VLM's activities extend to several MemberStates and could cover the whole of the EEA, that condition is also satisfied.

66.

    It follows from that reasoning that the defendant considered whether the conditionsfor the application of Article 92(1) of the Treaty were satisfied. In so doing, thedefendant set out the facts and the legal considerations of fundamental importancein the scheme of the decision. The statement of reasons informs the applicant andthe Community judicature of the defendant's reasons for considering that theconditions for application of Article 92(1) of the Treaty were satisfied in this case.

67.

    The applicant cannot criticise the defendant for not having examined the specificeffects of the aid in question on trade between Member States. First, thatargument lacks any factual basis, as is apparent from paragraphs 44, 51, 65 and 66above. In this case, the Commission was not required to carry out an extremelydetailed economic analysis of the figures since it had explained the respects inwhich the effect on trade between Member States was obvious. Nor was itrequired to demonstrate the real effect of aid which had not been notified. If itwere required in its decision to demonstrate the real effect of aid which hadalready been granted, that would ultimately favour those Member States whichgrant aid in breach of the duty to notify laid down in Article 93(3) of the Treaty,to the detriment of those which do notify aid at the planning stage (Case C-301/87France v Commission [1990] ECR I-307, paragraph 33).

68.

    It follows from the foregoing that the arguments put forward by the applicant inthe context of the first part of the third plea must be rejected.

The second part of the third plea: insufficient reasoning rejecting the argumentsconcerning exemption for small aid schemes in the aviation sector

Arguments of the parties

69.

    The applicant submits that the existence of the procedure for accelerated clearanceunder Article 93(3) of the Treaty, provided for at point 50 of the AviationGuidelines, demonstrates that, in the eyes of the Commission, aid below that ceilingin the aviation sector must be considered prima facie compatible with the commonmarket.

70.

    The reasoning in the contested decision is insufficient on that point, since it doesnot contain any information from which the Community judicature and theapplicant could assess to what extent the defendant sought to determine whetherthe limited aid received by VLM could benefit from an exemption as a small aidin the aviation sector.

71.

    Furthermore, the contested decision is defective because it gives a misleadingrepresentation of the comments formulated in that respect by the Flemish Regionon 23 January 1995.

72.

    In its reply, the applicant maintains that the defendant exceeded the limits of itsdiscretion by considering that the exemption for aid schemes of minor importancecould not be applied in the air transport sector, where there is keen intra-Community competition and a large number of undertakings are in difficulties, onthe ground that aid, even of a modest amount, would result in serious distortionsof competition. It would be illogical if new companies who succeeded inpenetrating the air transport market following liberalisation of the sector wereunable to receive a modest amount of investment aid, like small and medium-sizedenterprises in other sectors, when the majority of national airlines receive largeamounts of aid. In that respect, the defendant failed to note that, in the airtransport sector, the rules permit the Commission to approve aids of a very highlevel.

73.

    The defendant claims that this part of the plea should be rejected and points outthat the very fact that the accelerated clearance procedure exists demonstrates thataid below the specified ceiling cannot be considered prima facie compatible withthe common market.

Findings of the Court

74.

    It cannot be inferred from the accelerated clearance procedure for small aidschemes provided for at point 50 of the Aviation Guidelines that aid of an amountbelow the ceiling laid down therein escapes the prohibition in Article 92(1) of theTreaty or should normally be considered compatible with the common market.

75.

    As the defendant correctly points out, the very fact that the procedure existsdemonstrates that that cannot be so. Consequently, the defendant was in no wayrequired to consider whether the aid in question could benefit from an exemptionin so far as it was of an amount below the ceiling laid down at point 50 of theAviation Guidelines.

76.

    Even supposing that aid of an amount below that ceiling could be consideredcompatible with the common market, it is none the less clear from the decision thatthe defendant considered that, in this case, the aid could not be held compatiblewith the common market (see paragraphs 44 and 51 above).

77.

    The claim that the defendant gave an incorrect account of the applicant'scomments in the contested decision must be rejected. Reference is made to thosecomments in the context of a response to the applicant's argument that the Statemeasure in question could benefit from an exemption pursuant to point 50 of theAviation Guidelines (eighth paragraph of Chapter VII of the contested decision). That response does not constitute a fundamental aspect of the reasoning in supportof the operative part of the contested decision. That is apparent, furthermore,from the conclusion that the defendant's assessment, according to which Article92(1) of the Treaty applies to the aid in question, is sufficiently reasoned (seeparagraphs 65 to 67 above). Therefore, even if an inaccurate account was givenof the applicant's comments, the claim cannot be successful.

78.

    Finally, by its claim in the reply that the defendant exceeded the limits of itsdiscretion in applying Article 92(1) of the Treaty, the applicant has raised a pleain the course of the proceedings which is distinct from the plea based on a breachof the duty to state reasons. As that plea is not based on matters of law or of factwhich came to light in the course of the procedure, it must, having regard to Article48(2) of the Rules of Procedure, be held inadmissible.

79.

    That claim is, in any event, unfounded. In this case, the defendant applied theGuidelines. In that respect, it should be recalled that the Commission may laydown for itself guidelines for the exercise of its discretionary powers by way ofdocuments such as the Aviation Guidelines, provided that they contain directionson the approach to be followed by that institution and do not depart from theTreaty rules (Case C-313/90 CIRFS and Others v Commission [1993] ECR I-1125,paragraphs 34 and 36; Case T-380/94 AIUFFASS and AKT v Commission [1996]ECR II-2169, paragraph 57; see also Case T-149/95 Ducros v Commission [1997]ECR II-0000, paragraph 61). The applicant has not demonstrated that the AviationGuidelines depart from the Treaty rules. Furthermore, as noted in paragraph 54above, the fact that VLM's competitors receive State aid, even illegal aid, isirrelevant in classifying aid for the purposes of Article 92(1) of the Treaty.

80.

    It follows from the foregoing that the arguments put forward by the applicant inthe context of the second part of the third plea must be rejected.

The second plea: infringement of Article 92(3)(c) of the Treaty, which permits theCommission to declare aid granted to facilitate the development of certain economicactivities to be compatible with the common market

Arguments of the parties

81.

    According to the applicant, even if the aid in question fell within Article 92(1) ofthe Treaty, it would be covered by Article 92(3)(c) of the Treaty. Whenconsidering the possibility of authorising the aid under the latter provision, the

defendant committed a manifest error of assessment and clearly exceeded the limitsof its discretion.

82.

    By adopting the Aviation Guidelines, the Commission did not exhaust its discretion. It should examine in each individual case whether aid may be consideredcompatible with the common market under Article 92(3)(c) of the Treaty. TheAviation Guidelines cannot give rise to a prima facie assumption that situations notreferred to therein are manifestly illegal and cannot be considered compatible withthe common market pursuant to Article 92(3) of the Treaty. If a particular formof aid is not mentioned in the Aviation Guidelines, the Commission cannot,according to the applicant, merely refer to them.

83.

    In this case, the defendant failed to comply with that obligation by not consideringwhether the aid granted to VLM could, having regard to its amount, benefit froman exemption as aid intended to facilitate the development of certain types ofactivity within the meaning of Article 92(3)(c) of the Treaty. It should haveconsidered that question in the light of point 8 of the Aviation Guidelines (whichhighlights the need for Community air carriers to compete on a level playing field)and the fact that, since the entry into force of the third package of aviationmeasures, new airlines such as VLM must compete with other companies the vastmajority of which benefit from a programme of subsidies approved by theCommission.

84.

    In the applicant's submission, the defendant also wrongly considered, first, that theaid in question constituted operating aid, second, that it was not accompanied byany condition concerning the use of the aid and, third, that the applicant had notobtained any security and that VLM was in financial difficulties at the time the loanwas granted. In reality, the aid in question is investment aid, since it was to beused for the development of various European routes.

85.

    The defendant claims that the plea should be rejected and points out that it strictlyapplied the Aviation Guidelines which it adopted within the framework of itsdiscretion.

Findings of the Court

86.

    Article 92(3)(c) of the Treaty gives the Commission a discretion by providing thatthe aid specified therein 'may‘ be considered to be compatible with the commonmarket when it does not affect conditions of trade to an extent contrary to thecommon interest (see Philip Morris v Commission, cited at paragraph 50 above,paragraph 17).

87.

    The applicant cannot claim that the defendant exceeded the limits of its discretionby failing to consider whether the aid in question could benefit from an exemptionas an aid intended to facilitate the development of certain types of activity. In the

seventh paragraph of Chapter VII of the contested decision, the defendantexpressly considered that question and responded to the arguments put forward bythe Belgian authorities during the administrative procedure. In particular, it statedthat it was 'prepared to allow this exemption only in favour of aid to enterpriseswhich are to be restructured ... In this case the Belgian authorities have themselvessaid that the loan is not intended to assist restructuring; and they have made noreference to a restructuring programme. Thus the exemption provided for inArticle 92(3)(c) [of the Treaty] and Article 61(3)(c) [of the EEA Agreement] is inany event inapplicable here.‘ By holding that the aid in question was not intendedto assist restructuring, the defendant expressly referred to the Aviation Guidelines,which reserved the benefit of an exemption for the development of economicactivities under Article 92(3)(c) to aid intended to assist restructuring (points 37and 38 of the Aviation Guidelines).

88.

    Since the amount of the aid does not constitute a criterion for assessment laiddown by Article 92(3)(c) of the Treaty or by the Aviation Guidelines applicable inthis case, the defendant was under no obligation specifically to consider whether,in view of its amount, the aid could benefit from an exemption under thatprovision.

89.

    In the context of the broad discretion it enjoys in applying Article 92(3)(c) of theTreaty, the defendant is justified in relying on the criteria it considers to be mostappropriate in order to determine whether an aid can be considered compatiblewith the common market, provided that those criteria are relevant having regardto Articles 3(g) and 92 of the Treaty. In that respect, it can specify the criteria itintends to apply in guidelines which are consistent with the Treaty (see paragraph79 above). The adoption of such guidelines by the Commission is an instance ofthe exercise of its discretion and requires only a self-imposed limitation of thatpower when considering the aids to which the guidelines apply, in accordance withthe principle of equal treatment. By assessing specific aid in the light of suchguidelines, previously adopted by it, the Commission cannot be considered toexceed the limits of its discretion or to waive that discretion. On the one hand, itretains the power to repeal or amend any guidelines if the circumstances sorequire. On the other, the Aviation Guidelines concern a defined sector and arebased on the desire to follow a policy established by it.

90.

    Contrary to what is claimed by the applicant, it follows from point 10 of theAviation Guidelines that they cover the aid in question. Point 14 (Chapter III)states that direct operational subsidisation of air routes can, in principle, only beaccepted where the aid is designed to enable the recipient to carry out its publicservice obligations (points 15 to 23, Section III.2) or has a social character (point24, Section III.3). Points 37 to 42 list a number of conditions to be satisfied byrecipients of aid which may be authorised for the development of certain economicactivities pursuant to Article 92(3)(c) of the Treaty. It follows from the scheme ofthe relevant points that only restructuring aid may be authorised.

91.

    In the alternative, the applicant considers that the defendant committed a manifesterror of assessment by not considering the question in the light of point 8 of theAviation Guidelines, which highlights the Commission's desire that air carriersshould be able to compete on a level playing field. By this claim, the applicantimplies that, since other airlines have obtained State aids, the aid in question mustbe authorised in order to enable VLM to compete on a level playing field withthose companies in receipt of State aid.

92.

    In that respect, it should be pointed out that the authorisation of State aid grantedto certain airlines does not automatically mean that other airlines are entitled toa derogation from the principle that aid is prohibited. It is for the Commission,within the framework of its discretion, to consider each proposal for aidindividually. It must do so in the light, first, of the specific circumstancessurrounding the aid and, second, of general principles of Community law and theAviation Guidelines. Even if companies established in other Member States havereceived illegal aid, that is irrelevant for the purposes of assessing the aid inquestion (see paragraph 54 above).

93.

    The Commission's discretion cannot, in any event, be overridden by the sole factthat it authorised aid intended for a competitor since, if that were so, it woulddeprive the provisions of the Treaty granting it that power of all useful effect.

94.

    The applicant cannot criticise the defendant for having considered that the aid inquestion constituted operating aid, that it was not accompanied by any conditionconcerning its use, that the applicant had not received any security and that VLMwas in financial difficulties at the time the loan was granted. The loan contractdoes not require the aid to be used to finance any specific expenditure (seeparagraph 42 above), so that it relieves VLM of costs which form an integral partof its day-to-day activity. Consequently, the aid in question constitutes operatingaid (in that respect, see the judgment in Siemens v Commission, cited at paragraph63 above, paragraph 77) and not restructuring or investment aid.

95.

    In the contested decision, the defendant did not state that the applicant had notobtained any security for the loan. It stated, in the seventh and eighth paragraphsof Chapter V, that 'the lender has in fact a form of guarantee‘ and that 'the claimis not secured against moveable or immoveable property, as it would be if therewere a mortgage‘, which is confirmed by Article 3 of the loan contract.

96.

    Finally, the defendant did not state that VLM was in financial difficulties less thantwo years after its formation (sixth paragraph of Chapter V) when assessing the aidin question with regard to Article 92(3)(c) of the Treaty but, rather, when applyingthe criterion of a private investor operating under market conditions in order todetermine whether the loan in question constituted aid for the purposes of theTreaty. In that respect, the applicant has not established that the defendantincorrectly applied that principle, so that even if the contested statement lacksnuance, that in itself cannot result in the annulment of the contested decision.

97.

    It follows from the foregoing that the defendant was justified in refusing to grantan exemption under Article 92(3)(c) of the Treaty.

The third part of the third plea: insufficient reasoning concerning the application ofArticle 92(3)(c) of the Treaty

Arguments of the parties

98.

    According to the applicant, the Commission cannot, in an individual decision, simply lay down guidelines transposing its policy in the relevant sector or declarethat the conditions laid down in those guidelines are not satisfied. It must carry outan individual assessment of whether the aid in question cannot fall within theexception in Article 92(3)(c) of the Treaty.

99.

    In this case, the reasoning put forward in the decision does not make it possible toascertain whether the defendant took account of all the matters of fact and of lawwhich might have justified granting an exemption from the prohibition on Stateaids. The inadequacy of the reasoning is all the more patent because the AviationGuidelines referred to by the defendant in its decision do not necessarily restrictthe benefit of Article 92(3)(c) of the Treaty to restructuring aid.

100.

    In particular, the reasoning in the decision does not make it possible to evaluatethe extent to which the defendant actually considered whether the aid in questionsatisfied the criterion set out in the third paragraph of Chapter VII of the contesteddecision, according to which the exemptions provided for in Article 92(3) of theTreaty and Article 61(3) of the EEA Agreement apply only where the Commissioncan establish that without the aid in question, the effects of market forces wouldnot have been enough to incite the future recipient to undertake some actionconducive to one of the objectives for which the exemptions exist.

101.

    The defendant considers that it gave an adequate explanation in its decision of itsreason for not authorising the aid in question, by pointing out in particular that theaid did not form part of a restructuring programme approved by the Commissionin advance. Consequently, it claims that the third part of the plea should berejected.

Findings of the Court

102.

    By recalling the criteria laid down in the Aviation Guidelines and holding that thosecriteria were not satisfied in the present case (seventh paragraph of Chapter VIIof the contested decision), the defendant gave sufficient reasons for its decision. The recipient of the aid, interested third parties and the Community judicature are

perfectly able to identify the defendant's reasons for refusing to grant an exemptionunder Article 92(3) of the Treaty.

103.

    The applicant cannot criticise the defendant for not having considered whether ornot, without the aid in question, the effects of market forces would have beenenough to incite the future recipient to undertake some action conducive to one ofthe objectives for which the exemptions envisaged in Article 92(3)(c) of the Treatyand Article 61(3) of the EEA Agreement exist (see the third paragraph of ChapterVII of the contested decision). It was sufficient for the Commission to hold thatjust one of the conditions laid down in the Aviation Guidelines for the authorisationof aid under Article 92(3)(c) of the Treaty (here, the absence of a restructuringgoal) was not satisfied to conclude on sufficient grounds that the aid could not beauthorised under that provision.

104.

    Consequently the third part of the third plea is also unfounded.

105.

    It follows that the application must be dismissed in its entirety.

Costs

106.

    Under Article 87(2) of the Rules of Procedure, the unsuccessful party is to beordered to pay the costs, if they have been applied for in the successful party'spleadings. Since the applicant has been unsuccessful, and since the defendantapplied for costs, the applicant must be ordered to pay the costs of the defendantin addition to its own costs.

On those grounds,

THE COURT OF FIRST INSTANCE (Fifth Chamber, Extended Composition)

hereby:

1.    Dismisses the application;

2.    Orders the applicant to bear the costs.

García-ValdecasasTiili Azizi                 Moura Ramos                    Jaeger

Delivered in open court in Luxembourg on 30 April 1998.

H. Jung

J. Azizi

Registrar

President

Summary

    Legal background

II - 2

    Factual background

II - 4

    Procedure

II - 6

    Forms of order sought

II - 6

    Admissibility

II - 6

            Arguments of the parties

II - 7

            Findings of the Court

II - 7

    Substance

II - 8

        The first plea: infringement of Article 92(1) of the Treaty

II - 9

            Arguments of the parties

II - 9

            Findings of the Court

II - 10

                A — Distortion of competition

II - 10

                B — Effect on trade between Member States

II - 11

                C — Effect of aid granted to competitors

II - 12

                D — Calculation of the amount of the aid

II - 12

                E — Conclusion

II - 13

        The first part of the third plea: insufficient reasoning concerning the application ofArticle 92(1) of the Treaty

II - 13

            Arguments of the parties

II - 13

            Findings of the Court

II - 14

        The second part of the third plea: insufficient reasoning rejecting the argumentsconcerning exemption for small aid schemes in the aviation sector

II - 15

            Arguments of the parties

II - 15

            Findings of the Court

II - 16

        The second plea: infringement of Article 92(3)(c) of the Treaty, which permits theCommission to declare aid granted to facilitate the development of certaineconomic activities to be compatible with the common market

II - 17

            Arguments of the parties

II - 17

            Findings of the Court

II - 18

        The third part of the third plea: insufficient reasoning concerning the application ofArticle 92(3)(c) of the Treaty

II - 21

            Arguments of the parties

II - 21

            Findings of the Court

II - 21

    Costs

II - 22

1: Language of the case: Dutch.

ECR