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

25 June 1998 (1)

(State aid — Air transport — Airline company in a critical financial situation —Authorisation for an increase in capital)

In Joined Cases T-371/94 and T-394/94,

British Airways plc, a company incorporated under English law, established inHounslow, England,

Scandinavian Airlines System Denmark-Norway-Sweden, a company incorporatedunder the laws of Denmark, Norway and Sweden, established in Stockholm,

Koninklijke Luchtvaart Maatschappij NV, a company incorporated under the lawsof the Netherlands, established in Amstelveen, the Netherlands,

Air UK Ltd, a company incorporated under English law, established in Stansted,England,

Euralair International, a company incorporated under French law, established inBonneuil, France,

TAT European Airlines, a company incorporated under French law, established inTours, France,

represented by Romano Subiotto, Solicitor, with an address for service inLuxembourg at the Chambers of Elvinger, Hoss & Prussen, 15 Côte d'Eich,

applicants in Case T-371/94,

and

British Midland Airways Ltd, a company incorporated under English law,established in Castle Donington, England, represented by Kevin F. Bodley,Solicitor, and Konstantinos Adamantopoulos, of the Athens Bar, with an addressfor service in Luxembourg at the Chambers of Arsène Kronshagen, 12 Boulevardde la Foire,

applicant in Case T-394/94,

supported by

Kingdom of Sweden, represented by Staffan Sandström, acting as Agent,

Kingdom of Norway, represented by Margit Tveiten, acting as Agent, with anaddress for service in Luxembourg at the Royal Norwegian Consulate, 3 BoulevardRoyal,

Maersk Air I/S, a company incorporated under Danish law, established in Dragøer,Denmark,

and

Maersk Air Ltd, a company incorporated under English law, established inBirmingham, England,

represented by Roderic O'Sullivan and Philip Wareham, Solicitors, having anaddress for service in Luxembourg at the Chambers of Arendt & Medernach, 8-10Rue Mathias Hardt,

interveners in Case T-371/94,

Kingdom of Denmark, represented by Peter Biering, Head of Division in theMinistry of Foreign Affairs, acting as Agent, with an address for service inLuxembourg at the Danish Embassy, 4 Boulevard Royal,

and

United Kingdom of Great Britain and Northern Ireland, represented by John E.Collins, of the Treasury Solicitor's Department, acting as Agent, and RichardPlender QC, with an address for service in Luxembourg at the British Embassy,14 Boulevard Roosevelt,

interveners in both cases,

v

Commission of the European Communities, represented by Nicholas Khan andBen Smulders, of its Legal Service, acting as Agents, assisted by Ami Barav, of theBar of England and Wales and of the Paris Bar, with an address for service inLuxembourg at the office of Carlos Gómez de la Cruz, of the Commission's LegalService, Wagner Centre, Kirchberg,

defendant,

supported by

French Republic, represented by Marc Perrin de Brichambaut, Director of LegalAffairs in the Ministry of Foreign Affairs, and by Edwige Belliard, Catherine deSalins and Jean-Marc Belorgey, respectively Deputy Director, Head ofSubdirectorate and Chargé de Mission in the Legal Affairs Directorate of thatMinistry, acting as Agents, with an address for service in Luxembourg at the FrenchEmbassy, 8B Boulevard Joseph II,

and

Compagnie Nationale Air France, a company incorporated under French law,established in Paris, represented by Olivier d'Ormesson, of the Paris Bar, with anaddress for service in Luxembourg at the Chambers of Jacques Loesch, 11 RueGoethe,

interveners,

APPLICATION for the annulment of Commission Decision 94/653/EC of 27 July1994 concerning the notified capital increase of Air France (OJ 1994 L 254, p. 73),

THE COURT OF FIRST INSTANCE

OF THE EUROPEAN COMMUNITIES (Second Chamber, ExtendedComposition),

composed of: C.W. Bellamy, President, K. Lenaerts, C.P. Briët, A. Kalogeropoulosand A. Potocki, Judges,

Registrar: J. Palacio González, Administrator,

having regard to the written procedure and further to the hearing on 6 and 7 May1997,

gives the following

Judgment

Facts and procedure

Administrative procedure

1.
    By letter of 18 March 1994, the French authorities informed the Commission,pursuant to Article 93(3) of the EC Treaty, of their plan to inject FF 20 billion intothe capital of Compagnie Nationale Air France ('Air France‘). Enclosed with thatnotification was a restructuring plan entitled 'Projet pour l'Entreprise‘ ('thePlan‘).

2.
    Following a meeting and an exchange of correspondence with representatives ofAir France and the French Government, the Commission opened the procedureunder Article 93(2) of the Treaty. It informed the French authorities to that effectby letter of 30 May 1994, which was the subject of a communication published inthe Official Journal of the European Communities, C 152 of 3 June 1994, p. 2 ('thecommunication of 3 June 1994‘).

3.
    In that communication, the Commission took the view that the planned capitalinjection constituted State aid, while pointing out that it had to examine whetherthe aid plan would affect trade to an extent contrary to the common interest. Inthat regard, the Commission took the view in particular that:

—    economic reality required that account should be taken of the economicsituation and prospects of the entire Air France group;

—    it had to examine the effects which the aid would have on the competitivesituation of Air France on its international and domestic routes competingwith other European carriers.

4.
    The French authorities subsequently sent the Commission a series of letters and,together with representatives of Air France, took part in several meetings organisedby the Commission. By 4 July 1994, the Commission had received observations

from 23 interested parties, among them the Kingdom of Denmark, the UnitedKingdom of Great Britain and Northern Ireland, the Kingdom of Sweden, theKingdom of Norway, the Association des Compagnies Aériennes de laCommunauté Européenne (Association of Airline Companies of the EuropeanCommunity, hereinafter 'ACE‘) and a large number of European air companies,including the applicants.

5.
    Most of the interested parties shared the Commission's doubts regarding thelegality of the aid in question. The following were among their principal objections:

—    the aid would benefit not only Air France but also the entire group;

—    the aid would lead to overcapitalisation of the Air France group;

—    the purchase of 17 new aircraft at a cost of FF 11.5 billion would beunacceptable;

—    the compatibility of the aid with the common market ought not to beassessed solely from the standpoint of the development of its beneficiary;

—    in the event of authorisation of the aid, a massive reduction in Air France'scapacity ought to be imposed.

6.
    The views of the interested parties were communicated to the French authorities,which responded to them by letter of 13 July 1994 to the relevant Commissiondepartment. On 14 July 1994, the French Prime Minister sent a letter to theMember of the Commission responsible for such matters, outlining hisGovernment's commitments in the event that the Plan should be approved. On18 July 1994, the French Government sent a note containing two furthercommitments. Finally, on 26 July 1994, the French authorities provided theCommission with additional information.

The contested decision

7.
    On 27 July 1994, the Commission adopted Decision 94/653/EC concerning thenotified capital increase of Air France (OJ 1994 L 254, p. 73) ('the contesteddecision‘), which may be summarised as follows.

8.
    After describing the structure of the Air France group (which is involved in airtransport, the hotel industry, tourism, catering, maintenance and pilot training), theCommission noted that it was, together with British Airways and Lufthansa, one ofthe three biggest European air carriers. Since early 1990, it had been pursuing astrategy of acquiring shareholdings in other airline companies (UTA, Air Inter,Sabena and CSA), with a view in particular to consolidating its influence on the

domestic market and meeting competition on international routes. The Air Francegroup had begun a policy of modernisation and expansion of its fleet financedthrough borrowings, the financial charges on which had negatively affected thegroup's final result, leading to an initial loss of FF 717.2 million in 1990. Tocounter this situation, the group had adopted a number of restructuring plans, noneof which, however, was successful.

9.
    In summary, the Commission found that the Air France group was in a state ofvery serious financial and economic crisis: after a FF 3.2 billion loss in 1992, itrecorded its fourth consecutive annual loss, amounting to FF 8.4 billion, in 1993. The group's situation had deteriorated constantly over the previous three years. The gap between the Air France group and its competitors had increased becauseof the poor results in 1993, which were due mainly to poor productivity, highoperating costs and heavy financial charges.

10.
    The Commission went on to outline the Plan, which was intended to 'make AirFrance a real company‘ ('faire d'Air France une véritable entreprise‘), an aim tobe attained between 1 January 1994 and 31 December 1996 through a reductionin costs and financial expenses, through a different conception of the product andbetter utilisation of resources, through reorganisation of the company and throughemployee participation.

11.
    In that context, the Commission noted in particular that the number of new aircraftto be delivered during the restructuring period was to be reduced from 22 to 17and that the corresponding investment would thus amount to FF 11.5 billion. Theoperating fleet (145 aircraft) was to be increased by just one plane; the number ofseats offered was to be slightly reduced. Air France was also to rationalise its fleetby disposing of a number of aircraft. The mixed nature of its fleet (24 differenttypes or versions) was one of the factors contributing to its high operating costs. In addition, Air France was to simplify its network, increase frequencies onprofitable routes, develop long-haul routes, abandon marginal routes and focus onroutes where growth prospects were good. As regards personnel, the Planenvisaged in particular staff reductions of 5 000, a wages freeze (subject to re-examination) and a block on promotions. Air France was also to be restructuredinto 11 operating centres responsible for their own financial results, each centrehaving its own assets. Implementation of the Plan was to be financed by anincrease in capital and by the sale of non-core assets.

12.
    The Commission noted that, during its negotiations with the French Government,the latter had made a number of commitments regarding implementation of thePlan and the use of the capital granted to Air France, with the capital injection tobe made in three tranches: FF 10 billion in 1994, FF 5 billion in 1995 and FF 5billion in 1996. Those commitments were set out, in the form of conditions, in theoperative part of the contested decision.

13.
    On the basis of the foregoing, the Commission took the view that the capitalinjection in question constituted State aid within the meaning of Article 92(1) of theTreaty and Article 61(1) of the Agreement on the European Economic Area ('theEEA Agreement‘), which, taking into account Air France's large Europeannetwork and the intense competition existing on most of its routes, distortedcompetition within the EEA. In addition, the aid affected trade between the EEAcountries, given the international character of the civil aviation industry.

14.
    After excluding the application of other derogating provisions of the Treaty and theEEA Agreement, the Commission examined to what extent the aid met the criterialaid down in Article 92(3)(c) of the Treaty and Article 61(3)(c) of the EEAAgreement.

15.
    Examining the current situation in the civil aviation industry, the Commission tookthe view that the sector appeared to have overcome the serious economic crisiswhich had prevailed since 1990. Despite positive results (increases in passengertraffic), some European airlines were still loss-making because of marketovercapacity. However, the prospects for the European aviation industry werequite positive in the medium term. In the light of those forecasts, overcapacityappeared to be a phenomenon of temporary duration. The Commissionaccordingly took the view that the European air-transport market was not affectedby a structural overcapacity crisis and that the state of the aviation industry did notrequire general capacity cutbacks.

16.
    After assessing the Plan, the Commission formed the view that its successfulimplementation was capable of restoring the economic and financial viability of AirFrance and that a genuine restructuring of the company would contribute to thedevelopment of the European air transport industry by improving itscompetitiveness and was therefore in the common interest. In that connection, afootnote referred to the Commission's action programme 'The way forward forcivil aviation in Europe‘ (COM(94) 218).

17.
    In assessing whether the proposed aid was proportionate to Air France'srestructuring needs, the Commission considered that it was both necessary andproportionate to enable the company successfully to accomplish its restructuringplan and return to viability. In that connection, the Commission reviewed thevarious financial instruments issued by Air France between 1989 and 1993 andconcluded that the gearing (debt/equity) ratio would be 1.12:1 at the end of 1996. The structure of the Air France group balance sheet should then be as follows:equity (capitaux propres) = FF 18.65 billion; debt = FF 20.85 billion. That ratiowould be above average for the civil aviation industry, in which 1.5:1 wasconsidered to be an acceptable debt/equity ratio. The Commission then stated that,apart from the aid, Air France could improve its financial standing through its ownefforts by, inter alia, postponing aircraft orders and selling assets. As regards thefirst possibility, the Commission noted that Air France had already delayed a

number of aircraft orders; further postponement would take the average fleet agebeyond 10 years, which was too high for an airline aiming at regaining itscompetitive strength. So far as the sale of assets was concerned, the Commissionnoted that there was only a limited number of assets, such as Méridien, Sabena andAir Inter, whose sale could bring in significant amounts of money. Sabena and AirInter were two important core assets for Air France's aviation business. The saleof the remaining assets was already part of the Plan and would not in any eventlead to a significant reduction in the amount of the aid.

18.
    In verifying that the aid would not affect trade to an extent contrary to the commoninterest, the Commission referred to the commitments made by the FrenchGovernment during the administrative procedure — in particular, the commitmentthat Air France would be the only beneficiary of the aid — and concluded that theylimited its concern as to the possible effects of the aid in so far as they virtuallyprevented Air France from using the aid to cross-subsidise Air Inter's activities. The Commission therefore limited its analysis of the effects of the aid on trade toAir France, the actual beneficiary of the aid.

19.
    The Commission took the view that those commitments involved severe limitationson capacity, supply and pricing freedom for Air France and prevented it frompursuing an aggressive price policy on all the routes which it operated within theEEA. Further, during the first four months of 1994, Air France had alreadyreduced its supply on the European market by 6.4% in relation to thecorresponding period in 1993, whereas that of European airlines as a whole hadincreased on average by 3.8%. If Air France's supply were limited even belowmarket growth, its market share within the EEA would decrease, to the benefit ofits competitors. This would prevent the aid from affecting trade to an extentcontrary to the common interest.

20.
    The Commission pointed out that, for the purpose of analysing the effects of theaid within the EEA, it had also to take into account the increased liberalisation inthe air transport sector in the Community following the adoption in 1992 of anumber of Council regulations referred to as the 'third package‘. In that context,it considered that the removal of constraints protecting Air France fromcompetition represented an appropriate compensatory justification for the grantingof aid compatible with the common interest.

21.
    Finally, the Commission considered that the negative effects of the aid were notreinforced through the use of exclusive rights or through privileged treatment forAir France, since the French authorities had undertaken both to modify the trafficdistribution rules for the Paris airport system in order to make them non-discriminatory and to ensure that the works necessary to adapt the two airterminals at Orly South and Orly West should not affect conditions of competitionto the detriment of the airlines operating at Orly Airport. The Commission alsopointed out that, on 27 April 1994, it had adopted a decision requiring France to

authorise Community carriers to exercise traffic rights on the routes from Paris(Orly) to Toulouse and Marseille by 27 October 1994 at the latest.

22.
    The Commission concluded that the commitments made by the French authoritiestogether adequately met the concerns which it had expressed in opening theadministrative procedure.

23.
    Article 1 of the contested decision stated that the aid to be granted in the period1994 to 1996 in favour of Air France, in the form of a FF 20 billion capital increaseto be paid in three tranches, and aimed at its restructuring in accordance with thePlan was compatible with the common market and the EEA Agreement by virtueof Article 92(3)(c) of the Treaty and Article 61(3)(c) of the EEA Agreement,provided that the French Government complied with 16 commitments set out aspart of that article.

24.
    Article 2 of the contested decision made payment of the second and third tranchesof the aid subject to fulfilment of those commitments and to the actualimplementation of the Plan and achievement of the planned results, in order toensure that the amount of aid remained compatible with the common market. Before release of the second and third tranches of aid in 1995 and 1996, the FrenchGovernment was required to submit to the Commission a report on the progressof the restructuring programme and on the economic and financial situation of AirFrance. The Commission was to have the proper implementation of the Plan andthe fulfilment of the conditions laid down for the approval of aid verified byindependent consultants.

Procedure before the Court of First Instance

25.
    The applicants then brought the present actions, which were registered at the Courtof First Instance on 21 November 1994 and 22 December 1994 respectively.

26.
    The written procedures followed the normal course.

27.
    By orders of the President of the First Chamber (Extended Composition) of theCourt of First Instance of 10 March 1995, 8 May 1995 and 12 June 1995, theKingdom of Denmark, the United Kingdom, the Kingdom of Sweden, the Kingdomof Norway, Maersk Air I/S and Maersk Air Ltd ('the Maersk companies‘ or'Maersk‘) were granted leave to intervene in support of the forms of order soughtby the respective applicants.

28.
    By orders of the President of the First Chamber (Extended Composition) of theCourt of First Instance of 12 June 1995, the French Republic was granted leave tointervene in support of the forms of order sought by the defendant.

29.
    By orders of the Court of First Instance (First Chamber, Extended Composition)of 12 June 1995, Air France was granted leave to intervene in support of the formsof order sought by the defendant and to plead in French during the oralprocedures.

30.
    By decision of the Court of First Instance, the Judge-Rapporteur was transferredto the Second Chamber (Extended Composition), to which the cases wereaccordingly allocated.

31.
    Upon hearing the report of the Judge-Rapporteur, the Court of First Instance(Second Chamber, Extended Composition) decided to open the oral procedureswithout any preparatory inquiry. It did, however, request the parties to amplifytheir submissions on a number of issues.

32.
    The parties presented oral argument and replied to the Court's questions at thehearing on 6 and 7 May 1997.

33.
    On that occasion, the Court adopted a measure of organisation of procedure underArticle 64 of its Rules of Procedure, inviting the applicants and the intervenerssupporting them to lodge with the Registry the observations which they hadsubmitted to the Commission during the administrative procedure, to the extentthat they were not yet included on the case-file. The observations of BritishAirways plc ('British Airways‘), TAT European Airlines ('TAT‘), ScandinavianAirlines System Denmark-Norway-Sweden ('SAS‘), Euralair International('Euralair‘) and Air UK Ltd ('Air UK‘) were thus lodged with the Registry on8 May 1997, those of the Kingdom of Denmark, the United Kingdom, the Kingdomof Sweden and the Kingdom of Norway having already been lodged during thehearing.

34.
    Having heard the parties' arguments on this point during the hearing, and in theabsence of any objection on their part in that regard, the Court of First Instance(Second Chamber, Extended Composition) takes the view that the two cases shouldbe joined for the purpose of giving judgment.

Forms of order sought

35.
    The applicants claim, in both cases, that the Court should:

—    annul the contested decision; and

—    order the Commission to pay the costs.

The applicant in Case T-394/94 further requests the Court to prescribe measuresof organisation of procedure and measures of inquiry, in accordance with Articles

64 and 65 of the Rules of Procedure, and order production of all the relevant filesand documents available to the Commission.

36.
    The United Kingdom claims that the Court should:

—    annul the contested decision; and

—    order the Commission to pay the costs, including those of the UnitedKingdom.

37.
    The Kingdom of Denmark, the Kingdom of Sweden and the Kingdom of Norwayclaim that the Court should:

—    annul the contested decision.

38.
    The Maersk companies claim that the Court should:

—    annul the contested decision; and

—    order the Commission to pay the costs of their intervention in so far as sucha decision lies within the discretion of the Court.

39.
    The Commission contends that the Court should:

—    dismiss the applications;

—    order the applicants to pay the costs; and

—    order the Kingdom of Denmark, the United Kingdom, the Kingdom ofSweden, the Kingdom of Norway and the Maersk companies to contributeto the Commission's costs.

40.
    The French Republic contends that the Court should:

—    dismiss the applications.

41.
    Air France contends that the Court should:

—    dismiss the applications; and

—    order the applicants to pay the costs, including those incurred by AirFrance.

Substance

42.
    In support of their applications the applicants raise several pleas in law, which maybe classed in two groups. In the pleas in the first group (I), they claim that theCommission breached the rules relating to the administrative procedure providedfor under Article 93(2) of the Treaty by failing to obtain sufficient informationand/or to provide the parties concerned, including the applicants, with sufficientinformation to enable them to be properly heard and effectively exercise the rightsconferred on them by Article 93(2) of the Treaty and Article 62(1)(a) of the EEAAgreement. They also criticise the Commission for not having called onindependent experts to assess whether the contested aid was compatible withArticle 92(3)(c) of the Treaty and Article 61(3)(c) of the EEA Agreement andclaim that it failed to take all necessary steps to verify whether the informationprovided by the French authorities and Air France was well founded.

43.
    In the pleas in the second group (II), the applicants claim that the Commissioncommitted a number of errors in the application of Article 92(3)(c) of the Treatyand Article 61(3)(c) of the EEA Agreement. It is claimed in this connection thatthe Commission breached the principle of proportionality applicable in matters ofState aid by (A) wrongly authorising Air France to purchase 17 new aircraft, (B)wrongly authorising the financing of operating costs and operational measures ofAir France, (C) incorrectly classifying the securities issued by Air France between1989 and 1993, (D) misconstruing Air France's debt/equity ratio and (E) wronglyfailing to require the sale of disposable assets of Air France. The applicantsfurther claim that the Commission wrongly formed the view that the aid wasintended to facilitate the development of an economic activity without affectingtrading conditions to an extent contrary to the common interest. Their criticism inthis connection is principally directed at 12 of the 16 conditions of authorisationimposed by the decision authorising the aid. Finally, the applicants question, inseveral respects, whether Air France's restructuring plan is appropriate and submitthat the Commission wrongly concluded that the Plan was such as to restore theeconomic viability of Air France. In those various contentions, the applicants alsoargue that the Commission provided inadequate reasoning for the contesteddecision. Finally, the applicant in Case T-394/94, British Midland Airways Ltd('British Midland‘), claims that there has been a breach of Article 155 of theTreaty.

I — The pleas alleging irregularities in the conduct of the administrative procedure

Summary of the parties' arguments

44.
    The applicant in Case T-394/94 argues, in substance, that the administrativeprocedure under Article 93(2) of the Treaty is adversarial and that the Commissionought therefore to have provided the parties concerned with sufficient informationto enable them to appreciate fully the potential effect that the aid might have onthem. In the circumstances, the Commission's communication of 3 June 1994 wasinadequate. In particular, the Commission:

—    did not explain how the sum of FF 20 billion was calculated;

—    failed to indicate, in regard to the acquisition of 17 new aircraft, what typesof aircraft would be acquired or what types of aircraft the fleet wouldcomprise;

—    did not provide a copy of the restructuring plan;

—    predicted a 30% or 33.3% increase in productivity without explaining thebasis of such calculation;

—    did not provide details of the cost of the proposed voluntary redundancies;

—    failed to provide details of Air France's assets and to explain the breakdownbetween core and non-core assets;

—    did not give any valuation of the Méridien hotel chain;

—    did not give details of the value of Air France's shareholding in Air Inter,Sabena or others, or explain why these were not considered to be non-coreassets;

—    did not provide details of Air France's proposed route network so as toenable its possible effects on competition to be calculated;

—    did not give details of proposed 'new products‘ referred to by Air France,so as to enable an assessment of their effect on competition;

—    did not have Air France's annual accounts at the time when the contesteddecision was taken;

—    failed to explain why it did not insist on the disclosure of essentialinformation necessary for the adoption of a reasoned decision on thecompatibility of the aid with the common market;

—    did not take subsidiaries — in particular Air Inter — into account, as therestructuring plan concentrated solely on Air France; and

—    did not explain how the proposals for Air France to continue expansionplans could be reconciled with the aims of the Treaty, particularly in thelight of the failure of the two earlier capital injections of FF 5.8 billion.

45.
    In the observations which it submitted to the Commission during the administrativeprocedure, British Midland had already raised most of the abovementioned pointswhen it requested the Commission inter alia to show it the restructuring plan

submitted by Air France, on the ground that it would otherwise not have sufficientinformation to comment meaningfully on the planned aid.

46.
    The applicants in Case T-371/94 also take the view that the information in thecommunication of 3 June 1994 was inadequate. Greater precision in thecommunication regarding Air France's intention to increase frequencies onprofitable routes, develop long-haul routes, abandon marginal routes and focus onroutes where growth prospects were good would have enabled the applicants toassist the Commission in assessing this aspect of the restructuring plan. Inparticular, they claim, the Commission did not set out Air France's justification forthe need to purchase 17 new aircraft, so that the applicants could not submit thenecessary information which would have enabled the Commission to consider thataspect of the case carefully and impartially.

47.
    They also point out that the communication makes no mention of the unit ofmeasurement referred to as 'equivalent revenue passenger kilometre‘ ('ERPK‘). The contested decision confronted them for the first time with this unit, which wastailor-made for Air France and applied to the calculation of their own presumedcurrent and forecast productivity.

48.
    The applicants further submit that the Commission ought to have verified theFrench version of the communication regarding the passage relating to the possibleovercapitalisation of Air France. The transfer of ORAs (obligations remboursablesen actions — bonds redeemable into shares) and TSDIs (titres subordonnés à duréeindéterminée reconditionnés — repackaged perpetual floating-rate notes) 'from theside of the debts into the equity‘, in the English version, was rendered in Frenchby a transfer 'du passif vers l'actif‘. This translation error must have made it moredifficult for third parties using the French version to submit pertinent comments.

49.
    Finally, they consider that, in view of the complexity of this case, the Commissionought to have been assisted by independent experts in airline economics, financeand business. As is clear from Article 2 of the contested decision, which providesfor the involvement of independent consultants before the second and thirdtranches of the aid are released, the Commission itself recognises theindispensability of having outside experts to verify the proper implementation of therestructuring plan. It thus accepts implicitly that it has insufficient expertise to doso on its own.

50.
    The applicants in both cases take the view that the Commission, in adopting thecontested decision, demonstrated an unseemly degree of haste, incompatible withproper respect for their fundamental rights or for those of the other partiesconcerned. The contested decision was taken only 16 working days after the dateby which interested parties had to submit their comments, an exceptionally shorttime in which to examine, deliberate upon and resolve the complex issues raisedby the planned aid in issue. The period between the date on which the procedureunder Article 93(2) of the Treaty was opened (3 June 1994) and the date on which

the contested decision was adopted (27 July 1994) was 37 working days and thusmuch shorter than the average period in similar cases.

51.
    The Kingdom of Denmark pointed out at the hearing that it had unsuccessfullyrequested the Commission, during the administrative procedure, to send the FrenchGovernment's response to the communication of 3 June 1994 to the other MemberStates, so as to enable them to submit their observations before the Commissiontook its decision.

52.
    The Commission counters by stating that the procedure under Article 93(2) of theTreaty is not adversarial vis-à-vis interested third parties. Such parties are notentitled to be treated identically to the addressee of the final decision. TheCommission refers to the case-law on competition, according to which theprocedural rights of complainants are not as far-reaching as the right to a fairhearing enjoyed by the companies which are the object of the Commission'sinvestigation.

53.
    With regard to the communication opening the procedure under Article 93(2), theCommission stresses that its sole aim is to obtain from persons concerned allinformation required for its guidance with regard to future action. In the presentinstance, the communication of 3 June 1994 stated all the aspects in regard towhich it wished to receive observations in order to be able to state its views withregard to the planned aid notified by the French authorities. In thatcommunication, it provided all the information necessary to enable the partiesconcerned to express their views.

54.
    More generally, the Commission considers that it can only provide the informationwhich is in its possession at the time the communication is issued, which is notirrelevant and which is not covered by the obligation of professional or commercialsecrecy. Moreover, the purpose of a communication under Article 93(2) is not toexpress a concluded view but to raise questions. As regards the comprehensiveinformation which, in the applicants' view, ought to have been included in thecommunication of 3 June 1994, the Commission states that most of the pointsraised were either covered by the obligation of commercial secrecy or did not raisedoubts in regard to which it would have required additional information.

55.
    As regards the time taken for consideration of the case, the Commission points outthat the aid plan in issue was notified on 18 March 1994 and that the contesteddecision was taken on 27 July 1994, 131 days later. The time which elapsedbetween those two dates was approximately the same as in similar cases(Commission Decision 91/555/EEC of 24 July 1991 on aid to be granted by theBelgian Government in favour of the air carrier Sabena (OJ 1991 L 300, p. 48)('the Sabena decision‘), Commission Decision 94/118/EC of 21 December 1993concerning aid to be provided by the Irish Government to the Aer Lingus group(OJ 1994 L 54, p. 30) ('the Aer Lingus decision‘) and Commission Decision

94/698/EC of 6 July 1994 concerning increase in capital, credit guarantees and taxexemption in favour of TAP (OJ 1994 L 279, p. 29) ('the TAP decision‘)). Moreover, Article 10(3) of Council Regulation (EEC) No 4064/89 of 21 December1989 on the control of concentrations between undertakings (OJ 1989 L 395, p. 1)('Regulation No 4069/89‘), according to which a decision declaring a notifiedconcentration to be compatible with the common market should be made withinfour months, confirms that such a period is reasonable.

56.
    Finally, the Commission considers that there is no legal obligation on it to haverecourse to outside experts before reaching its decisions.

Findings of the Court

General aspects

57.
    As a preliminary consideration, it must be borne in mind that the disputed aid planwas officially notified by the French authorities to the Commission, which, once ithad decided to open the procedure provided for under Article 93(2) of the Treaty,was under an obligation to give 'notice to the parties concerned to submit theircomments‘ before it reached a decision on the matter.

58.
    The purpose of that provision of Article 93(2), it should be pointed out, has beenheld by the Court of Justice to be to oblige the Commission to take steps to ensurethat all persons who may be concerned are notified and given an opportunity ofputting forward their arguments (Case 323/82 Intermills v Commission [1984]ECR 3809, paragraph 17) and to allow the Commission to be fully informed of allthe facts of the case before taking its decision (Case 84/82 Germany v Commission[1984] ECR 1451, paragraph 13).

59.
    With more particular regard to the Commission's duty to inform interested parties,the Court of Justice has ruled that the publication of a notice in the Official Journalof the European Communities is an appropriate means of informing all the partiesconcerned that a procedure has been initiated (Intermills v Commission, citedabove, paragraph 17), while also pointing out that 'the sole aim of thiscommunication is to obtain from persons concerned all information required for theguidance of the Commission with regard to its future action‘ (Case 70/72Commission v Germany [1973] ECR 813, point 19). This Court has followed thatcase-law, which confers on the parties concerned essentially the role of informationsources for the Commission in the administrative procedure instituted under Article93(2) of the Treaty (Case T-266/94 Skibsværftsforeningen and Others v Commission[1996] ECR II-1399, paragraph 256).

60.
    It follows that, far from enjoying the same rights to a fair hearing as those whichindividuals against whom a procedure has been instituted are recognised as having(see, to that effect, Joined Cases 142/84 and 156/84 BAT and Reynolds v

Commission [1987] ECR 4487, paragraphs 19 and 20, concerning competition, andCase C-142/87 Belgium v Commission [1990] ECR I-959, paragraph 46), interestedparties have only the right to be involved in the administrative procedure to theextent appropriate in the light of the circumstances of the case.

61.
    There may be two reasons for restricting the extent of the right to participate andto be informed which interested parties enjoy in the context of the administrativeprocedure instituted under Article 93(2) of the Treaty.

62.
    First, where — as in the present instance — a Member State notifies the Commissionof planned aid and submits supporting documentation, and the relevantCommission departments subsequently hold a series of meetings with officials fromthe Member State in question, the amount of information in the Commission'spossession may already be relatively extensive, leaving outstanding only a smallnumber of doubts which information supplied by the parties concerned may dispel. In so far as they relate to the details of the planned aid, to the economic, financialand competitive position of the recipient undertaking and to its internal operations,the discussions between the Member State and the Commission will inevitably bemore thorough than those conducted with the parties concerned. While providingsuch parties with general information on the essentials of the planned aid,therefore, the Commission may confine itself to concentrating its communicationin the Official Journal on those aspects of the Plan concerning which it stillharbours doubts.

63.
    Second, the Commission is required, under Article 214 of the Treaty, not todisclose to interested parties information of the kind covered by the obligation ofprofessional secrecy, in particular information relating to the internal operations ofthe recipient undertaking. In that regard, the position of interested parties is notdistinguishable from that of complainants in competition cases who, according tothe case-law of the Court of Justice, may not receive documents containing businesssecrets (BAT and Reynolds v Commission, cited above in paragraph 60, paragraph21).

64.
    The limited nature of the abovementioned rights to participate and to be informed,in so far as they relate solely to the administrative procedure, is not at variancewith the Commission's duty under Article 190 of the Treaty to provide, in its finaldecision authorising planned aid, sufficient reasons which must address all theessential complaints which parties directly and individually concerned by thatdecision have made either on their own initiative or as a result of informationsupplied by the Commission. Thus, even on the assumption that the Commissionmay, in a particular case, validly prefer to use other sources of information andthereby reduce the significance of the participation of interested parties, it is notthereby released from its obligation to include an adequate statement of reasonsin its decision (see paragraph 96 below).

65.
    It is in the light of the principles set out above that the Court must examine thealleged irregularities which are claimed to have vitiated the course of theadministrative procedure, it being understood and undisputed that the applicants,the interveners supporting them and ACE, which all opposed authorisation of thedisputed aid plan during the administrative procedure before the Commission, mustbe treated as parties concerned for the purposes of Article 93(2) of the Treaty, asconstrued by the Court of Justice in paragraph 16 of Intermills v Commission, citedabove in paragraph 58.

The communication of 3 June 1994

66.
    With regard, first, to the allegedly inadequate nature of the communication of3 June 1994, it must be noted that the communication deals with:

—    Air France's economic and financial situation prior to the drafting of the aidplan, in particular the previous restructuring plans and capital injections andits accumulated losses;

—    the 'particular ... topics‘ on which the new restructuring plan focuses;

—    the projected aid amount of FF 20 billion; and

—    the main doubts expressed by the Commission at that stage of theprocedure concerning in particular the productivity gains of Air France, thestructure of the Air France group, the competitive position of Air Franceand the possibility of its being overcapitalised.

The Court takes the view that such information was sufficient to enable the partiesconcerned to present their arguments effectively before the Commission.

67.
    As regards the view taken by the applicants in Case T-371/94 that the ERPK unitof measurement, Air France's air network and its future development and thereasons justifying the acquisition of 17 new aircraft ought also to have featured inthe communication, the Commission's reply to the effect that it did not entertainany doubts on those specific points is sufficient to justify the absence in thatcommunication of any reference to those matters; that, however, does not meanthat the applicants may not ask the Court to examine whether the Commission'sfinal decision is adequately reasoned in regard to those matters or whether itcontains manifest errors of assessment or of law.

68.
    With regard to the complaint raised by the applicant in Case T-394/94 that therewas no notification of the numerous details mentioned above (see paragraph 44above), the Commission is justified in invoking the obligation of business secrecywhich prohibited it from disclosing commercially sensitive information on AirFrance to that airline's competitors. In particular, the restructuring plan — at the

stage prior to its approval by the Commission and to the start of its implementation— contained such information, and it was clearly not a matter for competitors toevaluate, and compare with their own management measures, each of therestructuring measures envisaged by Air France. Were the position otherwise,competitors would be able to interfere in the internal restructuring of Air Franceand to attempt to 'dictate‘ the measures which they might see fit for that company,after having obtained valuable information on their competitor. Such an analysisis not gainsaid by the fact that other interested parties, such as ACE (p. 27, finalparagraph, of its observations), have apparently been able to obtain thisrestructuring plan. That fact cannot lead the Commission to infringe Article 214of the Treaty.

69.
    It should be added that Air France's annual accounts for 1993 were published inthe Bulletin des Annonces Légales Obligatoires of 17 June 1994, at p. 10207 (point319 of Air France's statement in intervention in Case T-371/94), and were thusavailable to the parties concerned. Those parties cannot therefore criticise theCommission for not having disclosed the definitive figures in its communication of3 June and cannot argue that it took its final decision without knowledge of thatinformation.

70.
    Finally, the allegations that the Commission failed to obtain essential informationbefore adopting its final decision and did not sufficiently check all relevant aspectsof the case amount to no more than general assertions and assumptionsunsupported by any concrete evidence. The Commission was thus entitled simplyto reply that it had indeed obtained all useful and necessary information which wasthe subject of detailed verification on its part. Furthermore, those allegations infact concern not the stage of the communication of 3 June 1994 but the later stageof the contested decision. The same is true of the final two heads of complaintraised by the applicant in Case T-394/94 (see paragraph 44 above), which are inreality directed against the legality of the contested decision and concern thestatement of reasons and the assessment of the merits therein. They will for thosereasons be examined below in a separate context.

The time taken for consideration of the case

71.
    The applicants take the view that, given the complexity of the disputed aid plan,the period which the Commission gave itself for examining that plan beforeadopting the contested decision was too short. It must first be pointed out in thisregard that there is nothing in the Treaty or in Community legislation requiringdecisions on State aid adopted at the conclusion of the procedure under Article93(2) of the Treaty to comply with a fixed period. Furthermore, assuming that theCommission acted with excessive haste and did not give itself sufficient time toexamine the disputed plan, such conduct could not, by itself, justify annulment ofthe contested decision. To entail annulment, such conduct would have to involve

a breach of specific rules governing procedure, the duty to provide reasons or theinternal legality of the contested decision. Consequently, without its beingnecessary to express a view on the relevance of the Commission's decision-makingpractice in regard to concentrations, this contention must be rejected.

The need for external experts

72.
    The complaint that the Commission failed to seek assistance from external expertswhen drafting the contested decision is manifestly lacking any foundation, since noprovision of the Treaty or of Community legislation imposes any such obligation onit. It should be added that the Commission was, in any event, relatively wellinformed on the air transport sector before it adopted the contested decision. Inthat connection, it had already familiarised itself with the air transport situation,which was dealt with, in particular, in the report entitled 'Expanding Horizons‘published at the beginning of 1994 by the 'Comité des Sages‘ (Committee of WiseMen), in the programme 'The way forward for civil aviation in Europe‘, and in thepublications of the International Air Transport Authority (IATA) and theAssociation of European Airlines (AEA). In addition, the Commission hadadopted other decisions within the air transport sector, such as the Sabena, AerLingus and TAP decisions (cited above in paragraph 55). Finally, nothing in thepresent case indicates that the Commission had need of external expert assistance.

The translation error

73.
    The error in the French text of the communication of 3 June 1994, pointed out bythe applicants in Case T-371/94, is so obvious that those familiar with the air sectorwould readily have been aware of it. It is clear that loan bonds cannot, accordingto accounting principles, be transferred 'du passif vers l'actif‘ ('from the side ofthe debts into the equity‘ in the English text of the communication), but must beclassified, exclusively on the liabilities side, either as equity or as debt.

74.
    In any event, the Commission expressly pointed out, in the relevant passage of itscommunication, that it had still to examine in detail the classification of the bondsin question. Its assessment was thus not yet definitive in that passage, including thepoint distorted by the abovementioned error. That error cannot therefore affectthe legality of the administrative procedure, since the crucial question in that regardis solely whether the final decision was also affected by that error and theapplicants have not even alleged that to have been the case.

The participation of other Member States

75.
    The plea submitted by the Kingdom of Denmark, that the Commission should haveforwarded to the other Member States the French Government's reply to the

communication of 3 June 1994, must be dismissed as inadmissible since it was notraised by the applicants. In view of the fact that interveners must, under Article116(3) of the Rules of Procedure, accept the case as they find it at the time of theirintervention and that their submissions in an application to intervene are, under thefourth paragraph of Article 37 of the EC Statute of the Court of Justice, limitedto supporting the submissions of one of the main parties, the Kingdom of Denmarkis not, as an intervener, entitled to raise that plea in law (see, to the same effect,Case C-313/90 CIRFS and Others v Commission [1993] ECR I-1125, paragraphs 19to 22).

76.
    In any event, the text of Article 93 of the Treaty does not require the Commissionto forward to the other Member States observations which it has received from theGovernment of the State seeking authorisation to grant aid. On the contrary, itfollows from the third subparagraph of Article 93(2) that the other Member Statesmay be involved in a specific case of aid only where that case has, at the requestof the State concerned, been submitted to the Council.

Conclusion

77.
    In the light of the foregoing, the procedure under Article 93(2) of the Treatyfollowed in the present case was not vitiated by any defect and the pleas in lawrelating thereto must therefore be dismissed.

II — The pleas alleging errors of assessment and errors of law committed by theCommission in breach of Article 92(3)(c) of the Treaty and Article 61(3)(c) of theEEA Agreement

General aspects

78.
    In the contested decision, the Commission examined the legality of the disputed aidin the light of Article 92(3)(c) of the Treaty and Article 61(3)(c) of the EEAAgreement. In that examination, it found that a genuine restructuring of AirFrance would be in the common interest, that the amount of aid did not appear tobe excessive and that the aid would not affect conditions of trade to an extentcontrary to the common interest.

79.
    It has consistently been held that the Commission enjoys a broad discretion in theapplication of Article 92(3) of the Treaty (see, for instance, Case 730/79 PhilipMorris v Commission [1980] ECR 2671, paragraphs 17 and 24, Case 310/85 Deufilv Commission [1987] ECR 901, paragraph 18, and Case C-301/87 France vCommission [1990] ECR I-307, paragraph 49). Since that discretion involvescomplex economic and social appraisals, the Court must, in reviewing a decisionadopted in this context, confine itself to verifying whether the Commission complied

with the rules governing procedure and the statement of reasons, whether the factson which the contested finding was based have been accurately stated and whetherthere has been any manifest error of assessment or misuse of powers (Case C-56/93Belgium v Commission [1996] ECR I-723, paragraph 11, and the case-law citedtherein). In particular, it is not for the Court to substitute its own economicassessment for that of the author of the decision (Case C-225/91 Matra vCommission [1993] ECR I-3203, paragraph 23). The Court takes the view that thiscase-law is equally relevant to the examination under Article 61(3)(c) of the EEAAgreement.

80.
    In the present cases, the Commission points out that the applicants' contentions arein part based on events occurring after the contested decision was adopted. Inreply, the applicants argue that some of those subsequent events form part of acontinuing and uninterrupted succession of facts of which the Commission shouldhave been aware. Furthermore, certain subsequent facts illustrate clearly thecomments submitted by the applicants during the administrative procedure.

81.
    Here, it must be borne in mind that, in the context of an action for annulmentunder Article 173 of the Treaty, the legality of a Community measure falls to beassessed on the basis of the elements of fact and of law existing at the time whenthe measure was adopted (Joined Cases 15/76 and 16/76 France v Commission[1979] ECR 321, paragraph 7, and Case T-77/95 SFEI and Others v Commission[1997] ECR II-1, paragraph 74) and cannot depend on retrospective considerationsof its efficacy (Case 40/72 Schroeder v Germany [1973] ECR 125, paragraph 14). In particular, the complex assessments made by the Commission must be examinedsolely on the basis of the information available to the Commission at the time whenthose assessments were made (Case 234/84 Belgium v Commission [1986]ECR 2263, paragraph 16, and Case C-241/94 France v Commission [1996]ECR I-4551, paragraph 33).

82.
    It is in the light of the above principles that the substantive pleas and argumentshere raised by the applicants — which challenge the assessments as to whether theaid was proportionate, as to the impact of that aid on the civil aviation sectorwithin the EEA, and as to the appropriateness of the restructuring planaccompanying the disputed aid — must be examined.

The contentions based on breach of the principle of proportionality applicable in regardto State aid

83.
    In these contentions, the applicants and the interveners supporting them claim thatthe Commission authorised aid in an amount exceeding the restructuringrequirements of Air France. These contentions are based essentially on thejudgment in Philip Morris v Commission (paragraph 17, cited above in paragraph79), in which the Court of Justice ruled that Member States could not be permittedto make payments which would improve the financial situation of the recipient

undertaking 'although they were not necessary for the attainment of the objectivesspecified in Article 92(3)‘.

A — The contention that the Commission was wrong to authorise the purchase byAir France of 17 new aircraft

Summary of the parties' arguments

84.
    The applicants consider that it was disproportionate to approve aid the purpose ofwhich was to permit Air France to purchase 17 new aircraft. The Commission,they claim, was clearly wrong in concluding that the amount of aid could not bereduced by cancelling or postponing the orders placed by Air France for a valueof FF 11.5 billion. The costs of the periodically necessary renovation of the fleet,being an investment in capital assets, in principle form part of an airline's operatingcosts. Such renovation must be carried out without State intervention. In anyevent, the acquisition of new aircraft was not essential for Air France.

85.
    The applicants in Case T-371/94 also claim that the Commission provided aninadequate statement of reasons in that regard, even though it had been informedduring the administrative procedure that the purchase of 17 new aircraft was notan essential element in Air France's restructuring plan and ought therefore to becancelled. The Commission failed to consider seriously the third-party commentsfiled in response to its communication of 3 June 1994. The applicant in CaseT-394/94 and the Maersk companies, in intervention, argue generally that theCommission neglected to provide a proper statement of reasons by failing, inparticular, to deal properly with the detailed submissions made to it by third partiesduring the administrative procedure.

86.
    The Commission stresses that it was necessary for Air France to acquire the 17 newaircraft. It refers to the wording of the contested decision, which states that AirFrance's high operating costs were partly due to the considerable diversity of itsfleet, rationalisation of which was envisaged within the framework of therestructuring plan (contested decision, OJ pp. 75 and 76). Far from rejuvenatingthe fleet, the Plan merely slows down its ageing. New jet aircraft are significantlymore fuel-efficient, comply with environmental protection regulations and have lowrepair and maintenance costs. Finally, they have a greater passenger appeal.

87.
    So far as its obligation to state reasons is concerned, the Commission takes theview that the contested decision is in accordance with Article 190 of the Treaty. It is sufficient for the decision to set out the principal issues of law and fact uponwhich it is based and which are necessary in order that the reasoning which led theCommission to its decision may be understood (Case 24/62 Germany v Commission[1963] ECR 63, at p. 69). It is not required to discuss all the issues of fact and lawwhich have been raised by every party during the administrative procedure (see, for

example, Joined Cases 209/78 to 215/78 and 218/78 Heintz Van Landewyck andOthers v Commission [1980] ECR 3125, paragraph 66). Finally, the requirementsto be satisfied by the statement of reasons depend on the circumstances of eachcase, in particular the content of the measure in question, the nature of the reasonsgiven and the need for information of the undertakings to whom the measure isaddressed. In the Commission's view, the conditions laid down in the case-lawreferred to above were fully complied with in the contested decision, which, in 17pages of the Official Journal, sets out all the relevant issues of fact and lawsurrounding this case and summarises the objections raised by third parties duringthe administrative procedure. In particular, the Commission denies that it failedto take account of the observations submitted during that procedure. Thoseobservations were duly considered and conveyed to the French authorities for theircomments.

Findings of the Court

88.
    In view of the arguments put forward by the applicants, it is first necessary toascertain whether the contested decision contains an adequate statement of reasonsin regard to the authorisation of Air France's purchase of 17 new aircraft. It mustfirst of all be pointed out in this regard that, in the light of the settled case-law tothe effect that any absence of a statement of reasons may be raised by the Courtitself of its own motion (Case 18/57 Nold v High Authority [1959] ECR 41, at p. 52,Case C-166/95 P Commission v Daffix [1997] ECR I-983, paragraphs 24 and 25, andCase T-61/89 Dansk Pelsdyravlerforening v Commission [1992] ECR II-1931,paragraph 129), the Court invited the applicants and the interveners supportingthem to lodge the observations which they had submitted to the Commission duringthe administrative procedure in their capacity as parties concerned within themeaning of Article 93(2) of the Treaty, to the extent that those observations werenot yet included in the case-file (see paragraph 33 above).

89.
    In line with the settled case-law of the Court of Justice, the statement of reasonsrequired by Article 190 of the Treaty must disclose in a clear and unequivocalfashion the reasoning followed by the Community authority which adopted themeasure in question in such a way as to make the persons concerned aware of thereasons for the measure and thus enable them to defend their rights and the Courtto exercise its supervisory jurisdiction (Case C-350/88 Delacre and Others vCommission [1990] ECR I-395, paragraph 15, and the case-law there cited).

90.
    So far as concerns the notion of 'persons concerned‘ within the meaning of theabove case-law, the Court of Justice has ruled, in a case involving a Commissiondecision refusing to authorise an aid plan drawn up by a Member State for thebenefit of a State-controlled undertaking, that the requirement of a statement ofreasons must be assessed on the basis, in particular, of the interest which those towhom the measure is addressed 'or of other parties to whom it is of direct andindividual concern‘, within the meaning of Article 173 of the Treaty, may have in

receiving explanations (Joined Cases 296/82 and 318/82 Netherlands and LeeuwarderPapierwarenfabriek v Commission [1985] ECR 809, paragraph 19).

91.
    The Court of Justice has subsequently ruled that an undertaking in competitionwith an undertaking receiving State aid must be regarded as a 'party concerned‘within the meaning of Article 93(2) of the Treaty and must, in that capacity, beconsidered to be directly and individually concerned by the Commission decisionauthorising payment of the aid in question. In so doing, the Court of Justice alsopointed out that the parties concerned within the meaning of Article 93(2) hadalready been defined as the persons, undertakings or associations whose interestsmight be affected by the grant of the aid, in particular competing undertakings andtrade associations (Case C-198/91 William Cook v Commission [1993] ECR I-2487,paragraphs 24 to 26, and the case-law there cited).

92.
    The requirement to provide reasons for a decision taken in regard to State aid thuscannot be determined solely on the basis of the interest which the Member Stateto which that decision is addressed may have in obtaining information. Where aMember State has obtained from the Commission what it was seeking, namelyauthorisation for its planned aid, its interest in having a reasoned decisionaddressed to it may be greatly reduced, in contrast to that of competitors of thebeneficiary of the aid, in particular where it has received sufficient informationduring the negotiations with the Commission through, inter alia, exchange ofcorrespondence before the authorising decision was taken.

93.
    In the present instance, it is common ground that the applicants, the Maerskcompanies, as interveners, and ACE are parties concerned within the meaning ofArticle 93(2) of the Treaty and that the contested decision is of direct andindividual concern to them within the meaning of the fourth paragraph of Article173 of the Treaty, given that their market position is significantly affected by theaid measure which it authorises (Case 169/84 Cofaz and Others v Commission[1986] ECR 391, paragraph 25).

94.
    According to settled case-law, the question whether the statement of the groundsfor a decision meets the requirements of Article 190 of the Treaty must be assessedwith regard not only to its wording but also to its context and all the legal rulesgoverning the matter in question (Delacre and Others v Commission, cited above inparagraph 89, paragraph 16 and the case-law there cited). While the Commission,in the statement of reasons for a decision, is not required to discuss all the issuesof fact and law raised by interested parties during the administrative procedure(Case C-360/92 P Publishers Association v Commission [1995] ECR I-23, paragraph39), it must none the less take account of all the circumstances and all the relevantfactors of the case (Joined Cases C-329/93, C-62/95 and C-63/95 Germany andOthers v Commission [1996] ECR I-5151, hereinafter 'the Bremer Vulkanjudgment‘, paragraph 32) so as to enable the Court to review its lawfulness andmake clear to the Member States and the persons concerned the circumstances in

which the Commission has applied the Treaty (Publishers Association, cited above,paragraph 39).

95.
    It should be added that the Commission adopted the contested decision pursuantto Article 92(3) of the Treaty, in an area in which it enjoys a broad discretion (seeparagraph 79 above). Since the Court of Justice has ruled that the Commission'sdiscretion carries with it a duty to examine carefully and impartially all relevantaspects of the individual case (Case C-269/90 Hauptzollamt München-Mitte vTechnische Universität München [1991] ECR I-5469, paragraph 14), review of thatobligation requires a sufficiently precise statement of reasons in order to enable theCourt to be satisfied that it has been complied with.

96.
    It is thus necessary to ascertain whether the statement of reasons in the contesteddecision indicates clearly and unequivocally the Commission's reasoning, particularlyin view of the essential complaints concerning the assessment of the contested aidplan put to the Commission during the administrative procedure by British Airways,TAT, Koninklijke Luchtvaart Maatschappij ('KLM‘), SAS, Air UK, Euralair,British Midland and by ACE, in particular on behalf of Euralair and Maersk, by theKingdom of Denmark, the United Kingdom, the Kingdom of Sweden and theKingdom of Norway (the 'parties concerned‘).

97.
    On an overall reading of the observations lodged with the Court, it transpires thatsome of those parties had, in particular, insisted before the Commission on theunacceptable nature of the acquisition of 17 new aircraft for FF 11.5 billion, asprovided for in the restructuring plan. Since, in the face of the crisis generated byovercapacity, all airline companies not in receipt of subsidies were compelled tocancel or postpone orders for new aircraft at the beginning of the 1990s, AirFrance, it was argued, could not escape such an obligation. The decision to investFF 11.5 billion in acquiring aircraft would increase additional capital requirementsand consequently Air France's debts. In view of its disastrous financial situation,it would not be justified in using receipts from the sale of other assets for thepurpose of such financing. In order to ensure uniformity within the Air Francefleet, provided for in the restructuring plan, it would have been more appropriateto modify existing aircraft.

98.
    In particular, TAT (p. 18 of its observations) and the United Kingdom (p. 6 of itsobservations) stressed that the investment represented by the acquisition of 17 newaircraft concerned Air France's short-term operational activities, not itsrestructuring. It was normal modernisation designed to maintain the company'scompetitiveness. Such a measure should be financed through an undertaking's ownresources and not through State aid. In this case it was inevitable that, contrary tothe requirements of the case-law and the Commission's decision-making policy, thecontested aid would be used to finance the purchase of those aircraft. Such aidshould be classified as operational aid, not compatible with the requirements ofArticle 92(3)(c) of the Treaty. In that context, reference was made to thejudgments in Deufil (cited above in paragraph 79) and in Joined Cases 62/87 and

72/87 Exécutif Régional Wallon and Glaverbel v Commission [1988] ECR 1573, andto Commission Decision 90/70/EEC of 28 June 1989 concerning aid provided byFrance to certain primary processing steel undertakings (OJ 1990 L 47, p. 28).

99.
    In that regard, the Court notes that the Commission pointed out, in the contesteddecision, that one of the factors affecting the Air France group's operatingperformance was its fleet mix, which comprised too many different types of aircraft(24 different types or versions), contributing to the high operating costs (forexample, particularly high maintenance costs resulting from the large number ofdifferent spare parts and different qualifications for flying and ground personnel). As of 31 December 1993, the group's fleet consisted of 208 aircraft (Air France'soperating fleet consisted of 145 aircraft), with an average age of 8.6 years(contested decision, OJ, p. 75).

100.
    With regard to the 'particular ... topics‘ on which the restructuring plan focused,the Commission pointed out that it was intended to adjust the number of newaircraft to be delivered during the restructuring period from 22 to 17. Thecorresponding investment would thus be FF 11.5 billion (contested decision, OJ,p. 75). As for the capital necessary for this investment, the Commission noted thepostponement of aircraft orders, which, at the end of the restructuring period,would increase the average fleet age to some 9.3 years. Any further delay in fleetinvestment would simply mean a further deterioration of this figure which couldharm Air France's competitiveness and endanger the viability of the restructuring(contested decision, OJ, p. 82).

101.
    In examining whether the aid was proportionate to the needs of restructuring(contested decision, OJ, p. 83), the Commission took the view that, apart from theaid, Air France had three ways of improving its financial standing through its ownefforts, one of which was to postpone its aircraft orders. Since the company hadalready postponed a number of orders, further postponement would take theaverage fleet age beyond 10 years, which was too high for an airline aiming atregaining its competitive strength (contested decision, OJ, p. 85).

102.
    The reasoning, as thus stated, indicates clearly and unequivocally why theCommission considered that it was vital, in the specific case of Air France, toproceed with the purchase of 17 new aircraft. It includes the grounds ofjustification regarded by the Commission as being fundamental, namely the needfor Air France to have a fleet of a reasonable average age, the fact that thenumber of aircraft to be acquired was only a fraction of that originally envisagedand the fact that the planned investment would serve to make Air France's fleetmore uniform and thus lead to a reduction in operating costs. The Commissionthereby provided an adequate response to the first branch of the observationssubmitted by the parties concerned during the administrative procedure.

103.
    In the second branch of their observations, the parties concerned classified part ofthe contested aid as operating aid prohibited by the case-law in so far as it wasintended to finance purely operational activities of Air France, namely refurbishingof its fleet aircraft as operating assets.

104.
    It must be noted in that regard that, in Deufil (cited above in paragraph 79), theCourt of Justice approved the Commission's reasoning that investment in normalmodernisation intended to maintain an undertaking's competitiveness should becarried out using the undertaking's own financial resources, and not through Stateaid (paragraphs 16 to 19). In Exécutif Régional Wallon (cited above in paragraph98), the Court of Justice treated the Commission's line of reasoning — to the effectthat investment intended for the renovation and technical modernisation of aproduction line, which had to be carried out periodically, could not be regarded asdesigned to facilitate the development of certain economic activities within themeaning of Article 92(3)(c) of the Treaty — as comprehensible and falling withinits power of appraisal (paragraphs 31, 32 and 34).

105.
    Referring to that case-law, the parties concerned pointed out the risk that theamount of aid authorised might become excessive if part of it was not used for AirFrance's restructuring stricto sensu. In Philip Morris (cited above in paragraph 79,paragraph 17), the Court of Justice ruled that Member States were not entitled tomake payments which would improve the financial situation of the recipientundertaking 'although they were not necessary for the attainment of the objectivesspecified in Article 92(3)‘.

106.
    The parties concerned thus raised the possibility of an error of law, namely abreach of the principle of proportionality laid down, with specific reference to Stateaid, by Article 92(3) of the Treaty. This Court takes the view that it was essentialto consider that contention when assessing the aid plan in issue. The Commissionwas thus under an obligation to reply to it in the grounds of the contested decision.

107.
    In this connection, the Commission took the view, in the contested decision, thatinvestment in fleet renewal was necessary for the viability of Air France'srestructuring (contested decision, OJ, p. 82) and that postponement of orders fornew aircraft would take Air France's average fleet age beyond 10 years, a level toohigh for an airline company aiming at regaining its competitive strength (contesteddecision, OJ, p. 85). Investment in fleet renewal in an amount of FF 11.5 billion,which features among the 'particular ... topics‘ on which the restructuring planfocused (contested decision, OJ, p. 75), was thus regarded by the Commission asforming an integral part of Air France's restructuring.

108.
    The Commission confirmed that point of view before the Court by declaring thatthe acquisition of 17 new aircraft was justified 'within the framework of theimplementation of the Plan‘ (point 40 of the rejoinder in Case T-371/94). Moreover, according to the Ernst & Young report submitted by the Commission(Annex 2 to the defence in Case T-371/94), the purchase of the aircraft constituted

'... an integral element of its plan to rationalise its fleet ... This investment is a keyelement of [the] Plan‘ (point 22 on page 22 of the Report).

109.
    Regarding the detailed arrangements for financing that investment, the contesteddecision indicates that the implementation of the restructuring plan was to befinanced through the increase in capital and sale of non-core assets, from which AirFrance hoped to realise some FF 7 billion, in particular the sale of a number ofaircraft expected to generate some FF 4.1 billion, the sale of spare parts (FF 1.2billion), a building (FF 0.4 billion) and the Méridien hotel group (contesteddecision, OJ, p. 76). The contested decision adds that the French authorities gavean undertaking to ensure that, for the duration of the Plan, the aid would beexclusively used by Air France for the purposes of restructuring the company(contested decision, OJ, pp. 78 and 79).

110.
    In its assessment of the viability of the restructuring plan, the Commission statedthat the aid in question was aimed at financing the implementation of the Plan andrestructuring the finances of Air France (contested decision, OJ, p. 82). Insummary, it was satisfied that the aid granted to Air France was both necessary andproportionate to enable the company to accomplish successfully its restructuringplan and return to viability (contested decision, OJ, p. 86). Finally, condition ofauthorisation No 6 required the French authorities to ensure 'that ... the aid isused exclusively by Air France for the purposes of restructuring the company‘(contested decision, OJ, p. 89).

111.
    As is clear from that reasoning, the contested decision took the view that, while itwould serve to reduce Air France's indebtedness, the State aid in dispute was alsointended to finance the achievement of the restructuring plan, also financed by thedisposal of assets. At the same time, the Commission also considered thatinvestment in fleet renewal was in itself a vital factor in restructuring Air France. It thus appears that the contested decision acknowledged that the aid was intendedto finance the fleet investment involving the acquisition of 17 new aircraft. In anyevent, the decision did not preclude the possibility that the aid might be used, atleast in part, for the purpose of financing such investment. The only independentfinancial means at Air France's disposal designed to contribute to financing thisinvestment, namely the disposal of assets, was expected to realise only FF 7 billion,whereas the costs of the investment in question amounted to FF 11.5 billion.

112.
    Although such a purchase, accompanied by the disposal of old aircraft, clearlyconstitutes a modernisation of Air France's fleet, the contested decision did notcomment on the relevance, asserted by the parties concerned, of the Deufil andExécutif Régional Wallon judgments (cited above in paragraphs 79 and 98). TheCommission thus failed to specify whether it would tolerate, exceptionally, thefinancing in question because it considered that case-law to be irrelevant in thespecific circumstances of the present context or whether it intended to depart fromthe actual principle laid down therein.

113.
    A statement of position by the Commission was all the more necessary in the lightof its own decision-making practice reflecting its opposition in principle to alloperating aid intended to finance normal modernisation of installations. TheCommission considers that investments intended for such modernisation cannot betreated as restructuring and must for that reason be financed out of the ownresources of the companies concerned, without any State intervention (CommissionDecision 85/471/EEC of 10 July 1985 on an aid granted by the Federal GermanGovernment to a producer of polyamide and polypropylene yarn situated inBergkamen (OJ 1985 L 278, p. 26, at p. 29); Commission Decision 89/228/EEC of30 November 1988 on Decree-Law No 370/87 of 7 September 1987 of the ItalianGovernment, subsequently converted into Law No 460 of 4 November 1987 onproduction and marketing, including new standards for the production andmarketing of wine sector products (OJ 1989 L 94, p. 38, at p. 41); CommissionDecision 92/389/EEC of 25 July 1990 concerning the State aid provided for inDecree-Laws No 174 of 15 May 1989 and No 254 of 13 July 1989 and in draft LawNo 4230 regularising the effects produced by the abovementioned Decree-Laws (OJ1992 L 207 p. 47, at p. 51)).

114.
    It follows that the grounds of the contested decision do not make it clear that theCommission did in fact examine whether, contrary to the above case-law and itsown decision-making practice, the modernisation of the Air France fleet could bepartially financed by aid earmarked for restructuring of the company — and, if so,for what reasons.

115.
    That finding is not invalidated by the details produced before the Court by theFrench Republic and Air France with regard to the investments in aircraft ofFF 11.5 billion envisaged in the restructuring plan. In so far as those intervenershave indicated that the amount of FF 11.5 billion was divided into three tranches— FF 7.6 billion for the purchase of 17 aircraft, FF 3 billion for the purchase ofspare parts, and FF 0.9 billion for aeronautical work — it is clear that theaeronautical work and the spare parts serve, in the same way as the new aircraft,to modernise the company.

116.
    Admittedly, the Commission did subsequently argue, during the presentproceedings, that the contested aid was intended solely to reduce Air France'sindebtedness and not for the purchase of the 17 new aircraft, since fleet investmentwas to be financed exclusively by Air France's operating profits. However, thatreasoning, developed by the Commission's agents before the Court, not only doesnot feature in the contested decision but is even contradicted by the reasoningtherein to the effect that the aid was intended to finance, at least in part, theimplementation of the restructuring plan featuring the modernisation of AirFrance's fleet. As the Court of Justice ruled in its judgment in Case C-137/92 PCommission v BASF and Others [1994] ECR I-2555, paragraphs 66 to 68, theoperative part and the statement of reasons of a decision — which must be reasonedunder Article 190 of the Treaty — constitute an indivisible whole, with the resultthat it is for the college of Commissioners alone, in accordance with the principle

of collegiate responsibility, to adopt both the one and the other, any alteration tothe statement of reasons going beyond simple corrections of spelling or grammarbeing the exclusive province of that college.

117.
    Those considerations based on the principle of collegiate responsibility are equallyrelevant to the decision here under challenge, which also had to be reasonedpursuant to Article 190 of the Treaty and by which the college of Commissionersexercised the discretion reserved to it, to the exclusion of any other body, in theapplication of Article 92(3) of the Treaty. The arguments presented by theCommission's agents before the Court therefore cannot be upheld (see also, in thisconnection, Bremer Vulkan, cited above in paragraph 94, paragraphs 47 and 48).

118.
    The same applies, a fortiori, with regard to the explanations provided before theCourt by Air France and the French Republic, intervening in support of theCommission, which argue (i) that it was impossible to cancel or postpone theorders for the 17 new aircraft because they were firm contractual commitments,failure to comply with which would have involved the imposition of penalties, (ii)that, of the 34 aircraft whose resale was envisaged in the restructuring plan, sevenwere new machines and that the proceeds from their resale would correspond toseven new aircraft not yet acquired, (iii) that of the 17 new aircraft, seven wouldbe immediately resold without being commissioned, and (iv) that the total operatingresources of Air France were fixed at FF 19.2 billion in the restructuring plan, thussufficing to cover the investment expenses involved in fleet renewal. Thoseassertions are not covered by collegiate responsibility and therefore cannot mitigatethe defective reasoning by which the contested decision is vitiated.

119.
    It might be added, should any further reasoning be necessary, that, assuming themto be admissible, the explanations presented to the Court, to the effect thatapplication of the measures envisaged by the restructuring plan were intended toproduce a cash flow enabling Air France to meet its operating and investmentcosts, are in any event contradicted by the reasoning in the contested decision, fromwhich it is clear that the financial stability and profitability of Air France were notexpected to be restored until the end of 1996 (contested decision, OJ, p. 75).

120.
    It follows from all of the foregoing that the reasons given in the contested decisiondo not satisfy the requirements of Article 190 of the Treaty in so far as thepurchase of 17 new aircraft is concerned.

B — The contention that the Commission wrongly authorised the financing ofoperating costs and operational measures of Air France

Summary of the parties' arguments

121.
    The applicants in Case T-371/94 submit that the Commission failed to considerwhether the aid was indispensable for the restructuring of Air France, rather thansimply necessary to finance the expansion of its operations and the modernisationof its equipment. In their opinion, Article 92(3)(c) of the Treaty does not permitoperational aid intended to modernise the operations of its beneficiary.

122.
    They submit that the only structural costs that will arise from the implementationof the restructuring plan relate to the 5 000 voluntary redundancies, the preciseamount attributable to which remains open to debate since the contested decisiondoes not contain any information on that point. The costs which may arise fromthe other measures envisaged by the restructuring plan should be considered asoperating costs, in particular the marketing policy to win back customers and thelaunching of Euroconcept and Première Club. It seems probable that Air Francewill also use the aid to finance other operational measures not expresslycontemplated in the restructuring plan. In particular, it is significantly undercuttingfares on routes between the EEA and non-member countries.

123.
    Those applicants state that they have evidence that Air France's introduction of anew class on medium-haul routes and its introduction of the new class on long-haulroutes by the autumn of 1995 were costing it FF 150 million and approximatelyFF 500 million respectively, as is apparent from two press articles published inMarch 1995. They accordingly take the view that the operating costs incurredbefore the end of 1996, for example through the introduction of the two newclasses, will have been financed from the contested aid.

124.
    The applicant in Case T-394/94 also takes the view that the aid would be used tomake massive investments in Air France's new products, such as its 'Club Class‘operation. In that context, the applicants in Case T-371/94 point out that AirFrance enjoys a 'margin of safety‘ (contested decision, OJ, p. 85) which it coulduse in order to support and modernise its operations. The aid is sufficientlyexcessive to allow Air France to consider recapitalising its subsidiary Jet Tours ortransferring part of the aid to its subsidiary Air Charter.

125.
    The applicants in both cases take issue with the Commission's argument that thecontested aid is intended solely to reduce Air France's financial charges by loweringits rate of indebtedness and is not intended to finance its operating costs. Theysubmit that the mere possibility of the aid's being used to sustain and moderniseAir France's operations is sufficient to render it incompatible with Article 92(3)(c)of the Treaty. In support of that argument, they refer to the judgment in CaseC-303/88 Italy v Commission [1991] ECR I-1433, paragraphs 10 and 14, to theeffect that it is not necessary to establish that the State funds granted arespecifically and expressly intended to attain a precise objective; it is sufficient toobserve that, in any event, the receipt of those funds enables other resources to bereleased in order to arrive at the same result.

126.
    The applicants in Case T-371/94 add that the Commission failed to explain thedifference between the amount of the contested aid and the amount which wouldhave been required to implement the previous 'PRE 2‘ programme or the amountof FF 8 billion which, before the adoption of the contested decision, had beenindicated as necessary for implementing the restructuring plan. The Commission,they argue, also failed to consider whether and to what extent the restructuringundertaken by other airlines without financial assistance from the State showed thatthe free operation of the market would have led Air France to restructure itsoperations without intervention by the public authorities.

127.
    At the hearing, those applicants pointed out that the restructuring aid had to belinked to each measure envisaged. The Commission ought to have imposedconditions as to the manner in which the aid was to be used. It is, they argue,unacceptable to admit a general balance as to the aid granted overall 'for therequirements of Air France‘.

128.
    The Commission states that it assessed the coherence and effectiveness of therestructuring plan and evaluated the appropriateness of the amount of aid neededto allow Air France to implement it successfully. In doing so, it does not have toaddress issues alien to the intrinsic features of the Plan, even less other airlines'experiences.

129.
    It adds that the aid authorised was intended solely to reduce Air France's financialcharges through reduction in its level of indebtedness. Contrary to the applicants'allegation, it was not to be used to finance Air France's operating costs. Implementation of the drastic measures provided for in the restructuring plan,including the sale of assets, was expected to produce a cash flow enabling AirFrance to meet its operating and investment costs. However, that would not havesufficed to meet Air France's financial charges. Without reduction of its level ofindebtedness, Air France could not survive. At the end of 1996, Air France wasexpected to be able to meet all its costs, both operational and financial.

130.
    The Commission points out that the restructuring plan's operational improvementswere expected to generate FF 5 billion over its course. That amount should enableAir France to meet its operating costs, but not payment of principal and interest. With the aid, Air France's financial charges were expected to decrease from FF 3.2billion in 1993 to FF 1.8 billion in 1996 (contested decision, OJ, p. 75). Referringto the Ernst & Young report (Annex 2 to the defence in Case T-371/94), theCommission states that Air France's debt was to be reduced by FF 18.9 billion andadds that, without the aid, Air France's net loss forecast for 1996 would have beenFF 694 million, whereas with the aid it was expected to record a net profit ofFF 457 million. The risk of overcapitalisation was to be averted by the fact thatthe approved aid was payable in three tranches.

131.
    The judgment in Italy v Commission (cited above in paragraph 125), theCommission considers, lends no support to the applicants' argument. In that case,the Court of Justice held that capital injection by the State could constitute aid,given the continuous operating losses by the undertaking in question which weremade up by the State concerned, and in the absence of any restructuringprogramme. The Court of Justice was there concerned with the contentionadvanced by the government involved that the funds in question did not constituteState aid. The passages cited by the applicants address only that issue, whereas theapplicants here rely on the Court's dictum in order to support their very differentallegation that the Commission applied an incorrect legal test to establish that theaid to Air France was indispensable.

132.
    The French Republic and Air France dispute the view that the contested aid —although designed to reduce Air France's debt burden and not to cover part of itsoperating costs — none the less benefits its operation. To accept such a positionwould be tantamount to prohibiting all aid for restructuring purposes because itwould always be possible to argue that aid targeted at a particular reorganisationobjective takes the place of operating resources which would have been used forthat purpose were it not for the aid. It is, they argue, necessary to draw a cleardistinction between aid for restructuring which contributes to improving theoperating conditions of the undertakings concerned, and which may be perfectlycompatible with the common market, and mere operating aid or prolonged rescueaid which as a rule cannot be compatible.

Findings of the Court

133.
    In so far as the applicants claim that the Commission has enabled Air France totransfer aid to certain of its subsidiaries and consider it likely that Air France willglobally finance its operating costs, their arguments are too vague to be upheld,being limited to mere surmises unsupported by specific facts.

134.
    Nor can the argument based on the previous 'PRE 2‘ restructuring plan beaccepted. That plan encountered opposition from the unions and staff of AirFrance and for that reason could not be put into effect. In those circumstances,there was no obligation on the Commission to take account, for purposes ofcomparison, of aspects of a restructuring plan that had been unsuccessful. Thesame applies with regard to the amount of FF 8 billion mentioned before thecontested decision was adopted. Since this was not the figure officially forwardedby the French authorities to the Commission under the restructuring plan formallysubmitted, the Commission was under no obligation to take it into account.

135.
    While there can be no grounds for denying that the Commission was entitled tocompare the restructuring measures envisaged by Air France with those taken byother airline companies, the fact remains that the restructuring of a company mustbe targeted at its own specific problems and that the experiences of other

undertakings, in other economic and political contexts and at other times, may beirrelevant.

136.
    In so far as the applicants further contend that the aid ought to have been dividedinto different tranches, each linked to an individual restructuring measure, theCourt finds that such an approach would necessarily have revealed the cost of eachmeasure and thereby divulged Air France's internal operational structures. Suchinformation is, at least for a certain time, confidential and must be kept secret fromthe public — in particular, from Air France's competitors. In those circumstances,the mechanism of subsequent checks established by Article 2 of the contesteddecision, particularly in conjunction with condition of authorisation No 6, must beregarded as adequate to ensure that Air France would not be overcapitalisedthrough using the aid for purposes other than its restructuring.

137.
    As regards the applicants' argument that the only true restructuring measure in thedisputed plan is that relating to reductions in Air France's staff (5 000 voluntaryredundancies) and that all the other measures are in reality of a purely operationalnature, it must be borne in mind that, as has been found above in paragraphs 110,111, 116 and 117, the contested aid is intended to finance, at least in part, therestructuring of Air France and the assertion that the aid was used exclusively tosettle its debts must, in the absence of any mention in the text of the contesteddecision, be discounted. It is therefore necessary to examine the structural natureof the various measures to which the applicants refer.

138.
    It must be stressed that, as is evident from the case-file, Air France has no factoriesor industrial plants involving manufacturing processes capable of being technicallyrestructured. The activities of such a company are centred essentially around thesupply of passenger and freight transport and the means used for that supply. Restructuring is thus only validly possible as regards the structure of that supplyand of the company organisation on which it is based.

139.
    That being so, the Commission could reasonably treat the shedding of 5 000 jobs,together with the reorganisation of Air France into 11 operational centresresponsible for their financial results, as structural measures. This appears lesscertain of the commercial initiatives (Euroconcept, Club Class and Première Club)and the alterations to the route network, given that Air France is thereby merelyfollowing market trends, without making any change to the actual structures of thecompany. Such measures therefore appear to be purely operational and to concernsolely the running of Air France.

140.
    However, and without its being necessary to decide whether the case-law anddecision-making practice referred to in paragraphs 98 and 113 above are relevant,it should be borne in mind that Air France's restructuring plan was to be financedby an increase in capital, by means of the aid, and by the disposal of assets fromwhich Air France expected 'to realise some FF 7 billion‘ (contested decision, OJ,

p. 76). In the light of the relatively modest figures set out in this connection by theapplicants in Case T-371/94 (FF 150 million and FF 500 million), the Court takesthe view that the Commission was entitled to accept that those measures would becovered by revenue deriving from Air France's sale of its own assets and fromcurrent operating revenue.

141.
    In this context, it is necessary to reject the line of argument based on the judgmentin Italy v Commission (cited above in paragraph 125), to the effect that the aid was'fungible‘ in the sense that its receipt enabled Air France to release otheroperating resources which, instead of being used to repay its debts, could thenserve to finance the measures mentioned above. Since the case in questionconcerns investment and operating measures on a normal scale which every airlinecompany must reasonably adopt in order to be able to maintain its operationalactivities in the face of market competition, the French Republic and Air Francewere right to point out that such a theory of 'fungibility‘ would in fact amount toa prohibition of any restructuring aid and would, in the final analysis, force thebeneficiary undertaking to cease its operational activities.

142.
    It is true that a different conclusion might be reached with regard to the investmentof FF 11.5 billion defined in the contested decision as a 'fleet investment‘(contested decision, OJ, p. 75). The Court is not, however, in a position to examinethe issues underlying that problem, because the contested decision is not reasonedon this substantive point (see paragraphs 111 to 120 above). As regards AirFrance's pricing practice on routes outside the EEA, allegedly financed by the aid,examination of the arguments on this issue presupposes an analysis of thecompetitive situation of Air France on these routes. That analysis will be made ina different context (see paragraphs 259 to 280 below).

143.
    It follows that, subject to that final reservation, the contention that the Commissionwrongly authorised the financing of operating costs and operational measures mustbe dismissed.

C — The contention that the securities issued by Air France between 1989 and 1993were misclassified

Summary of the parties' arguments

144.
    The applicants in Case T-371/94 submit that, under the principle of proportionality,State aid cannot be so significant as to grant the beneficiary a better debt/equityratio than its competitors. In this case, the Commission misclassified the ORAs,TSDIs and TSIP-BSAs (titres subordonnés à intérêts progressifs assortis de bons desouscription d'actions — progressive-rate notes with equity warrants) issued by AirFrance from 1989 to 1993 in computing Air France's debt/equity ratio in 1996. According to the applicants, a correct classification of those securities would haveshown Air France's debt/equity ratio to be far better than that of any other airline.

145.
    In the contested decision, they claim, the Commission concluded that, for thepurpose of calculating Air France's debt/equity ratio, the ORAs represent 'quasi-own capital‘; however, it wrongfully assumed that the 1993 ORAs — and likewisethe TSIP-BSAs — would be replaced by conventional debt because, under itsDecision 94/662/EC of 27 July 1994 concerning the subscription by CDC-Participations to bonds issued by Air France (OJ 1994 L 258, p. 26), they had tobe reimbursed as constituting prohibited State aid. But Air France was not obligedand had not committed itself to replace the 1993 ORAs by conventional debt. Further, the cash at its disposal pursuant to its receipt of the aid should make it inpractice unnecessary for Air France to replace the proceeds of the 1993 ORAs andTSIP-BSAs by additional liquidity.

146.
    The applicants consider that developments since the adoption of the contesteddecision illustrate their proposition. According to a press release, on 5 April 1995the Commission ordered France (not Air France) to deposit the sum of FF 1.5billion in a blocked account pending the outcome of the proceedings before theCourt of Justice and Court of First Instance concerning the annulment of Decision94/662. As a result, Air France will continue to benefit from the proceeds of theORAs and TSIP-BSAs issued in 1993 at least until the judgment of the Court ofJustice or Court of First Instance, that is to say, during most of the restructuringperiod.

147.
    The applicants submit that the ORAs and TSIP-BSAs, along with part of theproceeds from the issue of the TSDIs, should in fact have been included in theequity component of Air France's debt/equity ratio because they represent fundspermanently available to it during its existence.

148.
    With more particular regard to the TSDIs, the applicants stress that subscribers arereimbursed by a trust in which Air France has placed part (25%) of the originalproceeds from the issue of the TSDIs, while a significant portion of those proceeds(75%) is permanently retained by Air France. Unlike a debt, which is extinguishedby reimbursement by the borrower, the TSDIs continue legally to exist even afterreimbursement of the capital sum. The Commission itself has stated, moreover, inits communication of 3 June 1994 (OJ 1994 C 152, at p. 8), that 'automatic‘repayment of the TSDIs is assured through a bank fund, that a repaymentobligation would become effective for Air France only in the event of liquidationof the airline, and that, in the Commission's analysis of Air France's financialsituation in 1992, the TSDIs were, with the French Government's consent, includedin the equity. In the applicants' view, the TSDIs are funds that are at Air France'spermanent disposal and thus provide it with a competitive edge over competingairlines. They add that if only that part of the proceeds from the issue of theTSDIs that is permanently retained by Air France were considered as equity, itwould have a significant effect on the debt/equity ratio for 1996, which would thenbe 0.76:1, as opposed to 1.12:1.

149.
    The applicants also claim that the Commission misunderstood the financialconcepts involved in the classification of the financial instruments at issue. Theyargue in this regard that, in the case of both the TSDIs and the TSIP-BSAs,interest payments are subordinated to Air France's results and may be suspended. The applicants add that the criterion relating to the convertibility of the instrumentsis inadequate in so far as the Commission indicates that the TSIP-BSAs will beequity in due course 'provided the market conditions enable the owner to exercisethe BSA‘. The Commission thereby failed to realise that the BSA (equity warrant)is a separate, additional, detachable and independent right, the holder of whichmay or may not be the holder of the TSIP (progressive-rate note). The latter is notconvertible because it is a perpetual subordinated note. The concept of'convertibility‘ is likewise inapplicable to the TSDIs, since they are perpetualsubordinated notes that may be reimbursed in the event of the liquidation of AirFrance. Finally, the applicants argue that the Commission's consideration of therights which the ORAs, TSDIs and TSIP-BSAs confer on their holders is withoutpertinence.

150.
    The Commission first points out that it emphasised, in the contested decision, theambiguous financial nature of the instruments themselves (contested decision, OJ,p. 84). It then states that, under Decision 94/662, the amounts paid for subscriptionto the ORAs and TSIP-BSAs issued in April 1993 were to be repaid by Air France,and that the value of those instruments should therefore be regarded as debt. Inrespect of the 1991 ORAs, they should be regarded as equity, since they wouldinescapably be converted, in due course, into shares, whereas the TSDIs issued in1989 and 1992 should be considered as debt, since they are redeemable after 15years and no conversion into shares may take place (contested decision, OJ, p. 85).

151.
    In so far as the applicants refer to its decision of 5 April 1995 (see paragraph 146above), the Commission points out that this decision, which was subsequent to thedate of the contested decision, has no bearing on the classification of the securitiesin question. It adds that, as long as there is a legal duty to repay the amounts ofthe ORAs and TSIP-BSAs, it is justified in holding that these amounts are replacedby conventional debt.

152.
    With regard to the TSDIs, the Commission stresses their repackaged nature. Thefact that part of the proceeds from the issue of the TSDIs is retained by Air Francehas no bearing on their qualification. That view is corroborated by the opinion ofthe Conseil Supérieur de l'Ordre Français des Experts-Comptables (GoverningBoard for Certified Public Accountants in France). It is the obligation to repay theprincipal amount which matters. The Commission points out that the net financialflow between Air France and the Trust with which part of the funds are depositedwill be nil at the end of 15 years. The loan represented by the TSDIs is actuallyrepaid by the extinction of the Trust and the resulting extinction of Air France'sliability. The entire amount raised by the issue of the repackaged TSDIs will thusbe repaid by Air France at the expiry of the 15-year period. The amount of theproceeds from the issue of the TSDIs which is not deposited in the Trust is not

permanently retained by the issuer. That amount corresponds to the issuer'sliability to pay interest on an annual basis during 15 years on the whole amount ofthe TSDIs. In the Commission's view, the insistence of the applicants that theissuer permanently retains part of the proceeds from the issue of the repackagedTSDIs is based on a subjective analytical approach which would make any loancapable of being regarded as an equity injection.

153.
    Even if payment of interest could be postponed in the case of both the TSDIs andthe TSIP-BSAs, the Commission takes the view that Air France still remains underan obligation to pay the interest accrued in respect of those amounts. In otherwords, payment of interest would only be deferred. As for the applicants'submissions regarding the rights which the various financial instruments confer ontheir holders, the Commission points out that the contested decision did notattribute any particular significance to the nature of the rights which thoseinstruments did or did not confer on holders. Overriding consideration was givento the compulsory conversion of bonds into shares.

154.
    On the matter of repackaged TSDIs, Air France points out that the accountingprofession only turned its attention to identifying their nature at the end of 1991. The French Commission des Opérations de Bourse (Stock Exchange Committee),in a statement released on 6 March 1992, opposed the inclusion of TSDIs as equity(capitaux propres). Practitioners were aware from the end of 1993 of a draftopinion by the Ordre Français des Experts-Comptables classifying the TSDIs asdebt. The position of its Governing Board was not finalised until 7 July 1994 alongthose lines.

Findings of the Court

155.
    It must first be noted that, in the contested decision, the Commission, in assessingwhether the aid was proportionate, pointed out that Air France's debt/equity ratiowas strongly influenced by the classification of a number of bonds issued by thecompany, the ratios varying considerably according to whether those bonds wereclassified as equity or debt (contested decision, OJ, p. 83). The Commission wenton to outline the amounts and characteristics of the financial instruments issued byAir France during the five years preceding the contested decision, namely theORAs issued in December 1991 and April 1993, the TSDIs issued in June 1989 andMay 1992, and the TSIP-BSAs issued in April 1993 (contested decision, OJ, pp. 83and 84). Finally, it set out the criteria distinguishing equity from loan capital on thebasis, in particular, of the provisions applicable in French law, of the FourthCommunity Directive on the annual presentation of company accounts, and of theopinion of the Comité Professionnel de Doctrine Comptable (ProfessionalCommittee on Accounting Policy) (contested decision, OJ, pp. 84 and 85).

156.
    The parties are all in agreement on the classification of ORAs as equity ('capitauxpropres‘ or 'fonds propres‘), since these securities will never be reimbursed butmust be converted into shares. Moreover, the Commission did in fact make sucha classification in the contested decision (contested decision, OJ, p. 85).

157.
    With more particular regard to the ORAs issued by Air France in April 1993 andsubscribed by the company CDC-Participations, it must be recalled that theCommission, in Decision 94/662, ordered these to be repaid on the ground thatthey constituted illegal State aid. Although the French Republic challenged thatdecision before the Court of Justice (Case C-282/94) and Air France brought anaction before the Court (Case T-358/94), the bringing of these proceedings did nothave any suspensory effect requiring the funds corresponding to the ORAs to berepaid by Air France. Furthermore, that Commission decision has becomedefinitive, since the time-limit for an appeal against the judgment of the Court ofFirst Instance of 12 December 1996 in Case T-358/94 France v Commission [1996]ECR II-2109 dismissing the action brought against that decision has expired andCase C-282/94 was removed from the Register of the Court of Justice by order of17 April 1997.

158.
    In that context, it is of no relevance that Air France may, until the presentjudgment has been delivered, have benefited from the value represented by thoseORAs. The availability of capital during a certain period does not amount to acriterion distinguishing equity from debt. All capital which an undertaking mayhave available to it must always be classified in the undertaking's balance sheet,necessarily under 'liabilities‘, either as 'debt‘, when it has to be repaid, or as'equity‘, when it remains permanently available to the undertaking. In view of thefact that the ORAs in question had to be reimbursed with effect from 27 July 1994,the Commission was correct in classifying them as debt.

159.
    The same applies with regard to the TSIP-BSAs issued in April 1993, which werealso the subject of Decision 94/662. It is consequently unnecessary for the Courtto rule on their classification in principle.

160.
    So far as the repackaged TSDIs are concerned, the parties have submitted anumber of specialist financial and accountancy reports concerning theirclassification. The applicants refer to the report compiled by Professor Pene(Annex 40 to the application and Annex 16 to the observations on theinterventions), while the Commission and Air France rely respectively on thereports of Ernst & Young (Annex 2 to the statement of defence, with a notedealing specifically with repackaged TSDIs in Annex A, and the annex to therejoinder) and of Professor Vermaelen (Annex 7 to Air France's statement inintervention). The Commission also refers to the opinion of the Conseil Supérieurde l'Ordre des Experts-Comptables, approved on 7 July 1994 (pp. 18 and 19 ofAnnex B to the Ernst & Young report forming Annex 2 to the statement ofdefence).

161.
    It follows from the expert reports relied on by each side that classification of therepackaged TSDIs involves complex economic and financial assessments. TheCommission has for that reason a broad discretion in such matters and the Courtmay criticise its decision in that regard only if a manifest error of assessment isidentified. It does not appear that the Commission wrongly regarded themechanism for the reimbursement of the TSDIs as being the decisive factor — apartfrom the impossibility of converting them into shares — governing their classificationas debt.

162.
    That conclusion is not invalidated by the fact that payment of interest on thoseTSDIs may be suspended in the event of poor financial results for Air France. Theclassification of a financial transaction as a loan cannot be called into question bythe fact that the conditions of remuneration are, in one particular respect,disadvantageous for the subscriber.

163.
    Nor, finally, is it gainsaid by the fact that the Commission initially tended to classifythe TSDIs as 'equity‘ (communication of 3 June 1994, OJ 1994 C 152, at p. 8). As Air France has pointed out before the Court, this change in approach reflectsthe changing classification of TSDIs between 1991 and 1994 within the accountancyprofession itself. In this context, it should be borne in mind that the ConseilSupérieur de l'Ordre Français des Experts-Comptables, in its opinion of 7 July 1994— thus, immediately before the contested decision was adopted — took the definitiveview that repackaged TSDIs constituted debt. The Court considers that theCommission cannot be criticised for having accepted, for purposes of classifyingthese French securities, the definitive opinion of the French body representing theprofession competent in this area.

164.
    Since the Commission did not commit any manifest error of assessment in regardto the classification of the securities issued by Air France, the present contentionmust be rejected.

D — The contention that Air France's debt/equity ratio was misconstrued

Summary of the parties' arguments

165.
    The applicants in Case T-371/94 take the view that Air France's forecastdebt/equity ratio for 1996 showed that its debt burden would be reduced to a levelfar below that of its competitors. In calculating that ratio at 1.12:1 and stating thatit was above the average for civil aviation, in which the figure of 1.5:1 was regardedas acceptable, the Commission misinterpreted the report compiled by KPMG — aninternational consultancy firm — and IATA referred to in the contested decision(contested decision, OJ, p. 85). That report shows, in fact, that the projecteddebt/equity ratio for Air France was below the ratio considered optimal andconsiderably below the actual average mentioned therein for 1992 (2.3:1 or 2.1:1,

depending on the method of calculation). The excessive nature of the aid is all themore evident if one contrasts Air France's debt/equity ratio (1.12:1) with theaverage debt/equity ratios (2.57:1 in 1992 and 3.17:1 in 1993) recorded in the IATApublication 'Airline Economic Results and Prospects‘ (Annex 12 to the reply).

166.
    The excessive nature of the aid granted to Air France cannot, they argue, berendered proportionate simply by reference to other financial ratios such as theinterest cover ratio. The Commission's finding, in the contested decision, that AirFrance's interest cover ratio for 1996 was expected to be 2.44:1, and thus very closeto the average ratio of 2.42:1 achieved by its competitors in 1993 (contesteddecision, OJ, p. 85), is therefore irrelevant. Furthermore, that ratio is incomplete,limited as it is to reflecting an undertaking's ability to use its operating profits topay interest charges; in addition, the criterion retained by the Commission for theselection of the panel of airlines used to compare Air France's 1996 ratio remainsunclear.

167.
    The applicants add that the Ernst & Young report (Annex 2 to the statement ofdefence), on which the Commission relies, itself states that Air France could haveachieved the theoretically optimal debt/equity ratio of 1.5:1 with aid amounting toonly FF 15.25 billion at maximum. It is therefore surprising that the same reportattempts to justify Air France's receipt of FF 20 billion on the ground that thereis no particular reason for Air France to have an 'average‘ debt/equity ratio.

168.
    Furthermore, any comparison between debt/equity ratios is of questionable value. In that regard, the report compiled by KPMG and IATA states that there issignificant variation in how debt/equity ratios are calculated and that it is thereforedifficult to make meaningful comparisons between airlines. Finally, it is not clearwhether the Commission's calculation of Air France's debt/equity ratio is based ongross or net figures and there is no explanation as to how those figures areconstituted.

169.
    Moreover, the Commission wrongly limited its analysis to a snapshot in 1996, a yearin which aid was still to be given, without considering its effects on Air France'sfinancial status after the aid period, by which time the aid would have helped tomake Air France vastly stronger, in financial terms, than its competitors. In theapplicants' view, the Commission should have made a dynamic analysis of the effectof the aid, beyond the restructuring period, on Air France's competitive positionin relation to its competitors when determining whether the aid was not excessive. The applicants' projections indicated that the aid would contribute to place AirFrance in a far stronger financial position in relation to its competitors than thatsuggested by the ratios on which the Commission relies in the contested decision.

170.
    Referring to the Ernst & Young report, the Commission considers that thecontested capital injection was calculated to be the minimum amount sufficient forAir France to restore its financial equilibrium. So far as concerns the debt figureused to calculate the debt/equity ratio, the Commission confirms that, according to

a consolidated trend in financial analysis, it used a net figure. The debt/equity ratiowas therefore not inflated by the use of a gross debt figure.

171.
    The Commission points out that the debt/equity ratio of 1.12:1 was not the onlyfactor taken into consideration in the contested decision in assessing theproportionality of the aid to the needs of Air France's restructuring, since theinterest cover ratio was also important. There was no requirement that AirFrance's 1996 debt/equity ratio should have been the average ratio in the civilaviation sector. It was, the Commission argues, sufficient that it should have beenwithin reasonable range of 1.5:1.

172.
    The Commission notes that it did not use the interest cover ratio in order to renderproportionate aid which Air France's debt/equity ratio allegedly showed to bedisproportionate. The relevance of the interest cover ratio cannot be doubted. Itis a measure of the company's ability to pay its financial charges, the purpose of thedisputed aid being specifically to redress Air France's burden of financial charges. The Commission adds that the reference, in the contested decision, to the 1993interest cover ratio of Air France's competitors is merely illustrative of a ratiosustained by healthy airlines.

173.
    The Commission finally stresses that it also considered other financial ratios. Withregard to return on equity, the Commission points out that the Ernst & Youngreport suggested only that this ratio provided an additional indicator of the levelof aid required to allow Air France to restore its economic viability. That theamount of aid authorised was the minimum required was established on the basisof various projected financial ratios.

174.
    Air France refers to the Sabena and Aer Lingus decisions (cited above inparagraph 55) and to Commission Decision 94/696/EC of 7 October 1994 on theaid granted by Greece to Olympic Airways (OJ 1994 L 273, p. 22) ('the OlympicAirways decision‘), by which the Commission authorised State aid in the civilaviation sector. It points out that the debt/equity ratios of those companies oncompletion of their restructuring plans were expected to be similar to or evenbetter than that of Air France. They therefore reflected a proportion of equityequal to or even greater than Air France's. The Commission thus accepted ratiosof 1.25:1 (Sabena), 0.75:1 and 0.41:1 (Aer Lingus) and 0.78:1 (Olympic Airways).

Findings of the Court

175.
    It should be stressed that the problems relating to Air France's financial ratios, inparticular its debt/equity ratio, give rise to highly technical financial and accountingquestions, as is corroborated by the parties' references to seven expert reports insupport of their contentions, namely those of Ernst & Young (Annex 2 to thestatement of defence and the annex to the rejoinder), of Professor Pene (Annex 40

to the application and Annexes 9 and 10 to the reply), of Professor Vermaelen(Annex 7 to the statement in intervention of Air France), and of Doctor Weinstein(Annex 1 to the statement in intervention of the United Kingdom).

176.
    In that connection, it must be noted that the consultants Lazard Frères fixed theamount required to recapitalise Air France, within the context of its restructuring,on the basis of its forecast revenues and costs and in regard to its futureprofitability (contested decision, OJ, p. 75) and that this amount was accepted bythe Commission in the exercise of its discretion. It should be added that this latterinformation was, at least while the restructuring plan was being drawn up andduring its implementation, extremely sensitive and confidential, particularly inregard to airline companies competing with Air France. Consequently, it is not forthe applicants, nor indeed for the Court, to question the actual principle of theneed for Air France to obtain FF 20 billion to attain the objectives of restructuringand settlement of debts that were laid down.

177.
    Since the calculation of FF 20 billion must be accepted as the starting-point forreviewing whether the amount of aid was proportionate, the question whether thatfinancial injection had any bearing on Air France's financial ratios may be reduced,in principle, to a simple mathematical operation.

178.
    It should be noted in that regard that the consultants Lazard Frères analysed theimpact which the disputed aid would have on Air France's financial ratios, stressingthe need to take account of capital structure ratios, capacity to service debts, andreturn on equity (contested decision, OJ, p. 84). It was after examining thosefigures that the Commission arrived at the debt/equity ratio of 1.12:1, stating that'this ratio appears to be above average for the civil aviation industry, where 1.5 isconsidered to be an acceptable debt-equity ratio‘ (contested decision, OJ, p. 85).

179.
    That comparison between the two debt/equity ratio figures is based on a studycarried out by KPMG in association with IATA. That study (Annex 45 to theapplication in Case T-371/94), drawn up in August 1992, includes the followingpassage (pp. 26 and 27):

'Debt-to-equity ratios

...

Airline executives were asked their views on an optimal debt-to-equity ratio for anairline. Responses range from 0.5:1 to 4:1; however, it is unclear whether theseresponses include or exclude long-term operating leases in the debt amounts. Theaverage of the responses received indicate an optimal debt-to-equity ratio of 1.5:1.

Airline executives were then asked to provide their airlines' debt-to-equity ratios,both on the bases of including and excluding long-term operating leases in debt.

The average debt-to-equity ratio of airlines responding is 2.3:1 including long-termoperating leases in debt and 2.1:1 excluding long-term operating leases from debt.

...

There is significant variation in how debt-to-equity ratios are calculated and it istherefore difficult to make meaningful comparisons between airlines. ...‘

180.
    As is clear from that text, the figures established by the investigation conductedwithin the civil aviation industry are not very representative. Having regard to the'significant variation‘ seen in the method of calculating debt/equity ratios, thediscrepancy between the figures 1.12:1, 1.5:1, 2.1:1 and 2.3:1 cannot per se bedescribed as significant for the purpose of establishing that the Commission failedto understand correctly the relationship between Air France's financial situationand the average in civil aviation.

181.
    That being so, it does not appear that the 1.12:1 ratio forecast for the end of 1996was disproportionate, having regard to the above figures ranging from 0.5:1 to 4.1:1and to the ratios of 1.25:1, 0.78:1, 0.75:1 and 0.41:1 approved by the Commissionin its Sabena, Olympic Airways and Aer Lingus decisions (cited above inparagraphs 55 and 174). The same applies with regard to Air France's interestcover ratio, which the Commission indicated would amount in 1996 to 2.44:1, thusvery close to the 2.42:1 average ratio achieved by its competitors in 1993 (contesteddecision, OJ, p. 85).

182.
    For the reasons given in paragraph 176 above, the contention that the Ernst &Young report itself considered that FF 15.25 billion would be sufficient for AirFrance to reach the optimum debt/equity ratio of 1.5:1 cannot be upheld. It mightbe added, should any further reasoning be necessary, that, as the Commission haspointed out, the passage in that report cited by the applicants (p. 21, footnote 21)merely corrects their calculation of the amount required to arrive at the ratio of1.5:1, that amount being, according to Ernst & Young, FF 15.25 billion and notFF 13.9 billion. The Ernst & Young report continues, moreover, by pointing outthat there is in any event no particular reason why Air France's debt/equity ratioshould be 1.5:1.

183.
    The Commission rightly states that the IATA Report entitled 'Airline EconomicResults and Prospects‘, to which the applicants refer, reproduces the averagedebt/equity ratios of more than 30 airline companies worldwide, including Iran Air,Royal Air Maroc and Tunis Air, which are hardly similar to Air France in terms ofindustrial and financial structure, and which are not in real competition with it. The Commission was therefore not obliged to compare Air France's debt/equityratio with those of the airline companies covered by that report.

184.
    In so far as the applicants expressed uncertainty, in their application, as to whetherthe calculation of Air France's debt/equity ratio was based on gross or net figures,it need merely be noted that the Commission pointed out, in its defence, withoutbeing contradicted by the applicants, that what it took into account was a netfigure, so that the debt/equity ratio was not inflated by the inclusion of gross debt. Finally, the Commission was under no obligation to calculate Air France'sdebt/equity ratio beyond the restructuring period, which was the only referenceperiod for compliance by the French Republic and Air France with the greater partof the conditions governing authorisation of the aid.

185.
    Since the Commission did not commit any manifest error of assessment in thecalculation and consideration of the financial ratios mentioned in the contesteddecision, the present contention must be rejected.

E — The contention that the Commission wrongly failed to require Air France tosell disposable assets

Summary of the parties' arguments

186.
    The applicants argue that the Commission was manifestly wrong in concluding thatthe level of the contested aid could not be reduced by Air France's disposing of anyassets other than those provided for under the restructuring plan. The principleof proportionality, they submit, requires an undertaking intending to restructure touse all its own resources before it can rely on State aid. The Commission oughttherefore to have required Air France to create liquidity by disposing of all its non-core assets, regardless of the amounts thus raised. Had it done so, the amount ofthe aid could have been much lower.

187.
    The applicants stress in that regard that the Air France group includes 103companies involved in travel-related activities distinct from air transport, such asleisure travel, catering, aircraft maintenance, information systems and freightforwarding, including companies as important as Groupe Servair and Jet Tours,which achieved turnovers in 1993 of FF 2.6 billion and FF 2.4 billion respectively. Its interests also cover activities as unrelated to air transport as cheesemanufacturing. More than 20% of Air France's turnover, they argue, is attributableto activities unrelated to air transport. In addition, Air France has shareholdingsin 20 airlines.

188.
    The sale of a number of Air France's shareholdings in other companies, inparticular Air Inter and Sabena, might, the applicants believe, have been sufficientto obviate the need for much of the aid. Without the disputed aid, Air Francewould, like any loss-making parent company, have looked to its subsidiaries,including Air Inter, to contribute to limiting its losses. To illustrate their point, theapplicants have derived values for Air France's interests in eight airlines (AirCharter, Air Inter, Sabena, MEA, Austrian Airlines, Tunis Air, Air Mauritius and

Royal Air Maroc) and one other company (Servair). In aggregate, they value thoseshareholdings at between FF 3.1 billion and FF 6 billion.

189.
    So far as Air Inter is concerned, the applicants pointed out during the hearing thatits claimed utility to Air France was in fact very circumscribed. Air Inter's role,they submitted, was limited to attracting passengers from the French provinces toAir France's 'hub‘ at Charles de Gaulle Airport for international flight departures. Air France could have achieved the very same result either by using its own aircraftor by concluding cooperation agreements with other companies, including Air Inter. The applicants accordingly take the view that Air Inter is not an indispensable assetfor Air France's operations.

190.
    The applicants state that Air France's 37.5% shareholding in Sabena could bevalued at BFR 6 billion. That shareholding was purchased in 1992, which, in theapplicants' view, suggests that it could hardly be considered vital for Air France,which had operated without it for many years. Moreover, Sabena's chairmandeclared in public in September 1994 that Air France should dispose of itsshareholding. The applicants point out that they informed the Commission at theadministrative procedure stage of the existence of significant evidence that therewas no longer any basis for an alliance between Air France and Sabena. Theyrefer in that connection to a press article which appeared in June 1994 (Annex 46to the application), suggesting that the Belgian company wanted Air France torelinquish its holding.

191.
    Moreover, Air France paid one-quarter of the sum due for its holding in Sabena,they claim, within days of the contested decision's being adopted. It was clear thatAir France would rely on the aid to compensate for that payment, given itsshortage of liquidity. The Commission should have prevented Air France frompaying that outstanding amount, since aid authorised for restructuring purposes maynot be used for the acquisition of shareholdings in other companies. Had it beenprevented from making that payment, Air France would doubtless have found itnecessary to dispose of its shareholding in Sabena as part of its restructuring effort.

192.
    The applicants stress that they are not requiring Air France to dispose of assetswhich are undeniably part of its core business. They do, however, submit that AirFrance should have been compelled to sell, in particular, assets which it itselfdescribed as non-core assets in its 1993 Annual Report. Referring to a pressarticle, the applicants add that Air France was apparently considering, inSeptember 1994, the sale of some assets which, one month earlier, the Commissionhad considered ineligible for disposal, such as its shareholding in Groupe Servairor in Amadeus, a computerised reservation system. That fact alone must vitiate theCommission's finding that Air France did not need to sell other assets becausenone could have raised significant sums of money.

193.
    In reply to the Commission's assertion that the identity of other assets of which AirFrance intended to dispose could not be revealed on grounds of confidentiality, theapplicants contend that the Commission's practice is in fact to make such disclosurewhen it requires undertakings to sell assets as a condition to, for example, itsapproval of concentrations under Regulation No 4064/89, cited above in paragraph55. Thus, the Commission required the sale of identified assets in Decision91/403/EEC of 29 May 1991 declaring the compatibility of a concentration with thecommon market (Case No IV/M043 — Magneti Marelli/CEAc) (OJ 1991 L 222,p. 38) and in Decision 92/553/EEC of 22 July 1992 relating to a proceeding underCouncil Regulation (EEC) No 4064/89 (Case No IV/M.190 — Nestlé/Perrier) (OJ1992 L 356, p. 1). Furthermore, even if Air France's non-core assets could nothave been sold prior to authorisation of the aid, the Commission could haverequired the placing of assets to be sold with a trustee, for instance an investmentbank, which could have arranged for their sale. The applicants refer, by way ofexample, to the Crédit Lyonnais case (OJ 1995 C 121, p. 4), in which a newstructure was created, namely the Consortium de Réalisations, a wholly-ownedsubsidiary of Crédit Lyonnais, which was to buy Crédit Lyonnais' assets intendedto be sold off or liquidated. Likewise, in the present context, Air France'sshareholding in Sabena could have been transferred to a bank, which would havebeen able to advance money pending sale to a third party.

194.
    At the hearing, the applicants also stressed that, so long as the contested decisiondid not require specific assets to be sold, Air France had no interest in sellingassets during the restructuring period because such a sale would have involved areduction in the aid granted. That view, they argued, has been confirmed bysubsequent developments, which have allowed Air France to 'counterbalance‘ thesale of its shareholding in Sabena with the loss of income resulting from the factthat it had sold fewer aircraft than had been envisaged. This, the applicantssubmitted, proved that the sale of non-core assets ought to have been evaluated bythe Commission from the outset.

195.
    The Kingdom of Denmark states that, in its Aer Lingus decision (cited above inparagraph 55), the Commission required Aer Lingus to dispose of its non-transportassets in order to contribute to its restructuring in an amount greater than that ofthe aid received. The Kingdom of Denmark also points out that Air France did infact sell its shareholding in the Czech company CSA. It does not understand whyAir France could not also sell its shareholdings in Sabena or Air Inter.

196.
    The United Kingdom argues that the Commission should have seriously consideredthe possibility that Air France could dispose of its interest in Sabena. Such a salewould not necessarily have precluded the continuance of the joint marketingarrangement between the two companies. Many airlines have joint marketingarrangements without its being considered necessary for each airline to have asubstantial minority shareholding in the other. Nor does the Commission explainwhy Air France could not dispose of its interest in Air Inter, a fortiori since AirFrance's control of Air Inter is the result of a relatively recent acquisition. Finally,

some of the companies belonging to the Air France group, such as Groupe Servair,are very profitable and could therefore have realised a substantial price on sale. Others are loss-making, so that their sale or winding-up could be expected toprovide a substantial reduction in the losses of the Air France group and acorresponding reduction in the need for aid.

197.
    The Kingdom of Norway considers that the Commission failed to require AirFrance to sell all of its non-core assets. Such disposal is an important element ina restructuring plan not only because of its contribution to the liquidity of thecompany concerned, but also in order to reduce its costs, restore its corporateidentity and realign its activities. In this case, it argues, many of Air France'sactivities are peripheral to the essential activities of an airline. British Airways,SAS, KLM and other international airlines have adopted measures to contract outservices that could be obtained more cheaply from independent third parties. Those airlines have disposed of numerous non-core assets, even though theproceeds of each individual sale may have been insignificant.

198.
    The Commission denies that it failed to take account of the opportunities availableto Air France for divesting itself of certain of its interests. After examining AirFrance's various shareholdings, it reached the conclusion that sale of the assets ascontemplated by the Plan would be adequate within the framework of itsrestructuring. However, no evaluation was made of Air France's interests inSabena or Air Inter since their sale was not part of the restructuring plan and thoseinterests could be regarded as core assets of Air France.

199.
    At the hearing, the Commission pointed out that, since the essential element in theactivities of Air France and Air Inter was air transport, there could be no shadowof a doubt that Air Inter represents an essential asset of Air France. Air Inter'ssignificance for Air France stems from the fact that, in contrast to other airlines,Air France does not have a national network. That is why the Commissionaccepted that Air Inter was indeed an essential asset for Air France, which oughtnot to run the risk of seeing Air Inter pass under the control of competitors. AirFrance added that the commercial synergism with Air Inter was vital for its survival,control over a domestic network being essential for a major airline. Air Franceneeded Air Inter in order to benefit from flight connections within the domesticnetwork to feed its long-haul flights. Moreover, all major European airlines controltheir domestic networks and thus prefer to have a majority shareholding in thosenetworks rather than enter into commercial agreements with them.

200.
    The Commission emphasises that Air France's disposal of assets was consideredwith due regard to its overall interests and strategy. It was thus satisfied that thedisposal of assets contemplated by Air France was adequate. In that context, thesale of assets by other airline companies in other circumstances and at other timesis not relevant to addressing the issue of which assets had to be disposed of by Air

France. The nature and extent of various airline companies' interests rendercomparisons futile.

201.
    The Commission adds that the identity of other assets and interests which AirFrance intended to dispose of could not be revealed, since such disclosure wouldhave interfered with, and could have been detrimental to, the conduct ofnegotiations then taking place in respect of such assets. Moreover, the contesteddecision did not prohibit the disposal of other assets. Market conditions maychange and create incentives to dispose of assets and interests not envisaged by therestructuring plan or affect the price of those whose disposal was provided fortherein. In verifying whether the aid was proportionate to the needs ofrestructuring, the Commission emphasised (contested decision, OJ, p. 86) that theamounts to be paid could be adjusted, as necessary, in order to take account of thedevelopment of Air France's financial situation following, inter alia, the sale ofassets.

202.
    The applicants' reference to the Commission's power under the Merger Regulationis irrelevant since mergers affect the very structure of the market in question. Nor,similarly, is the applicants' case advanced by their reference to the possibility ofplacing assets to be sold with a trustee charged with arranging their sale. In anti-trust matters the control of a company is the very issue, whereas here it is not. Asfor the Consortium de Réalisations established by the Crédit Lyonnais plan, theCommission points out that it is a wholly-owned subsidiary, the operation being anexercise in the internal reorganisation of a group.

203.
    In any event, no part of the contested aid was intended to be used by Air Franceto pay the last instalment for its shareholding in Sabena. The aid was authorisedin order to reduce the burden of Air France's financial charges. It would,moreover, have been unlawful to induce Air France not to honour its contractualobligations vis-à-vis Sabena and thereby encourage a breach of contract.

204.
    The French Republic and Air France point out that Air France's holding in theshare capital of Sabena was one of its essential strategic assets. In July 1994everything suggested that renegotiation of the agreement to acquire that holdingwould entail a very serious loss for Air France and would place Sabena in a difficultposition. According to the interveners, it was only in October 1994 that the BelgianGovernment announced its decision to recapitalise Sabena. In July 1994, neitherAir France nor the French Government knew what the Belgian Governmentintended to do in that regard. Since Air France could not meet the increase incapital recommended by the Belgian Government, the latter proposed a purchaseof Air France's holding, while a new partnership between Sabena and Swissair wascontemplated.

205.
    Air France states that a number of its non-core assets had already been sold inconnection with the first stages in implementing the Plan. Thus, its holding in theCzech airline CSA was sold on 25 March 1994. Similarly, the holding of Servair

(75% held by Air France) in the share capital of Saresco, and consequently of itssubsidiary engaged in cheese manufacture, was sold off. The sale of the Méridienhotel group, which had actually taken place in the interim, involved 20 out of the103 companies in the group. It is clear from the contested decision that other saleswere contemplated under the Plan. The expected timetable for the sales and theestimated amount to be raised from them were provided to the Commission for allnon-core assets with significant value. However, those assets were not explicitlyidentified in the decision for obvious reasons of confidentiality.

206.
    Air France stressed at the hearing that, although not an air-transport activity, theAmadeus computerised reservation system was essential for all of the group's coreactivities. Contrary to the applicants' insinuations, Air France's holding in Amadeushad not been sold and it had no intention of selling it.

207.
    As for Servair, Air France confirmed, also at the hearing, that its sale wasenvisaged under the restructuring plan. Receipts from the sale of Servair wereincluded in the financial projections and were thus taken into account for thepurpose of reducing the amount of recapitalisation. However, such informationhad to remain confidential in order for the sale of Servair to be negotiated at thebest possible price and in view of the risk of social unrest to which this news wouldcertainly have given rise at Servair, which would have seriously jeopardised thequality of Air France's in-flight service, highly dependent as it was on this essentialsupplier of airline meals. The follow-up to Servair's sale was examined in detail bythe Commission and its experts when the second and third aid tranches wereauthorised.

208.
    With regard to the other assets such as Air Charter and Jet Tours, Air Francepointed out on the same occasion that they unquestionably form part of its strategicassets. Furthermore, the sales of Jet Tours and Air Charter would have providedAir France with insignificant receipts. Finally, the sales of Air France's minorityshareholdings in Royal Air Maroc, Austrian Airlines, Tunis Air, Air Mauritius andAéropostale were examined in detail by the Commission. Such sales could nothave produced significant receipts and would not have had any effect on theamount of the recapitalisation.

Findings of the Court

209.
    In its examination of the disputed aid, the Commission formed the view that therestructuring of Air France, the largest French air carrier and one of the threelargest in Europe, would contribute to the development of the European airtransport industry by improving its competitiveness and was therefore in thecommon interest (contested decision, OJ, p. 83). The Commission thus indicatedthat it was not pursuing a policy of completely dismantling the Air France group,but preferred to maintain Air France in its position as one of the major European

airline companies, alongside Lufthansa and British Airways. Since it involvescomplex assessments of economic policy, the exercise of the discretion which theCommission enjoys under Article 92(3)(c) of the Treaty, and which resulted in theadoption of the contested decision, may be open to censure in the present contextonly if there was a manifest error of assessment or an error of law, a fortiori in thelight of the fact that the Commission took care to ensure, by spreading payment ofthe aid over three tranches, that developments in Air France's financial situationcould be monitored, enabling it, if necessary, to adapt the amounts to be paid(contested decision, OJ, p. 86).

210.
    It was within the context of the exercise of its discretion that the Commissionspecified only a limited number of non-core assets — the Méridien hotel group, abuilding, old aircraft and spare parts (contested decision, OJ, pp. 75 and 76) —which Air France was required to dispose of in order that the amount of aid couldbe limited to FF 20 billion.

211.
    Consequently, the argument which the Kingdom of Denmark derives from the AerLingus decision (cited above in paragraph 55), in which the Commission requiredthe aid beneficiary to sell all but its core assets, and the Kingdom of Norway'sreference to the examples of British Airways, SAS, KLM and other internationalairlines which, as part of their restructuring, disposed of numerous assets unrelatedto air transport, are both irrelevant. The circumstances of restructuring areconditioned by the specific situation of the undertaking in question alone. The factthat the companies referred to may have been persuaded or required, within thefactual context of their own restructuring, to dispose of numerous assets cannottherefore in itself cast any doubt on the decision taken by the Commission, in thespecific situation prevailing in July 1994, to maintain Air France as one of the threemajor European airline companies and to authorise it to retain the greater part ofits assets.

212.
    Consequently, the Commission was entitled to treat the following three categoriesas being assets of which Air France could not dispose: first, those essential to thepresent and future operation of the company as an air carrier; second, those usedin cooperation strategies, control of which it was necessary to prevent falling intothe hands of a competitor; finally, those relating to activities closely linked to theoperations of a major airline. As is clear from the case-file, the Commissionclassified such assets — in particular, Air Charter, Air Inter, Sabena, Amadeus andJet Tours — as non-disposable.

213.
    Air Charter, it need merely be noted, is, like Air France, active within the airtransport sector itself. It thus belongs to one of the core activities of Air France. While it is true that Air Charter has specialised in charter air travel, that is to say,a market distinct from scheduled air transport, these are but two aspects of thesame air transport activity, the division of which into two separate companiesultimately reflects no more than an internal allocation of functions. It follows that

the Commission was entitled to form the view that Air Charter constituted anessential component of Air France's air transport activity.

214.
    So far as Air Inter is concerned, it must be borne in mind that, in the contesteddecision, the Commission indicated that the French Government had undertakento ensure that Air France would be the sole beneficiary of the aid in question andto set up for that purpose a holding company to control both Air Inter and AirFrance (commitment No 1). The Commission considered that this commitmentlessened its doubts as to the secondary effects of the aid because it prevented AirFrance from using the aid to subsidise the activities of Air Inter. Basing itself oninformation received concerning the future structure of the holding company andon the corresponding commitment given by the French authorities, the Commissiontook the view that the beneficiary of the aid was Air France together with itssubsidiaries, including Air Charter (contested decision, OJ, pp. 81 and 86).

215.
    It is common ground that, in contrast to Lufthansa and British Airways, Air Francedid not have a domestic network before it assumed control of Air Inter in 1990. The Commission was therefore quite entitled to form the view that this control —exercised, during the restructuring period, by the holding company arrangementdescribed above — was essential for the present and future operations of Air Francebecause its loss could have had a serious effect on Air France's feeder traffic, theresponsibility of Air Inter. Air Inter's activities concentrate essentially on airtransport within French metropolitan territory. This internal French marketprovides substantial passenger traffic to Air France's centre of operations at ParisCharles de Gaulle Airport ('Paris (CDG)‘). In those circumstances, it is obviousthat Air France could not run the risk of seeing Air Inter, following its disposal,come under the influence of a competing company and of thereby losing asubstantial portion of its feeder traffic.

216.
    Nor could Air Inter's direct link to Air France have been validly replaced by itstransfer to a bank and the simultaneous conclusion of commercial agreementsrelating to that feeder traffic with Air Inter or other companies. The applicantshave not established that such a solution could have excluded the risk that Air Intermight be absorbed by a competing company, thereby compromising the operationof Air France's feeder traffic. So far as the conclusion of such agreements withother airline companies is concerned, suffice it to note that, in July 1994, Air Inter'scompetitive position on the domestic French market was so strong that Air France,which was seeking to restructure and recover profitability, could not have beenrequired to replace its well-established relations with Air Inter by contracts withcompanies still lacking infrastructures on the French market comparable to thoseof Air Inter.

217.
    In addressing the applicants' argument that Air France could itself organise its ownfeeder traffic, particularly within the domestic French network, it is necessary tonote that the restructuring plan for Air France envisaged an operating fleet of 146

aircraft and did not specifically earmark that fleet for such feeder traffic. On thecontrary, it was particularly on long-haul routes that this plan envisaged growth inAir France's supply, which presupposed intensified use of its fleet in that sector. On that view, the provision of services on the domestic market was essentially amatter for Air Inter, which had to use its own aircraft for that purpose. It was notfor the Commission to order Air France to concentrate on the domestic market,since such a measure would have risked weakening its position on internationalflights.

218.
    With regard to Air France's shareholding in Sabena, it must be accepted that, atthe time, Air France had only a minority (37.58%) holding in the Belgian company. That fact, however, does not mean that its holding did not constitute an importantstrategic element in Air France's air transport activities. Note should be taken ofthe decision of 5 October 1992 (Annex 24 to the applicants' observations on theinterventions in Case T-371/94), in which the Commission stated that it would notoppose the protocol agreement signed by Air France, Sabena and the BelgianState, which conferred on Air France, via the company Finacta, a 37.58% holdingin Sabena (with 37.5% of the voting rights).

219.
    That decision, which was available to any interested party (see the communicationin the Official Journal of the European Communities of 21 October 1992 (OJ 1992C 272, p. 5)), noted inter alia that:

—    Finacta, controlled by Air France, was to approve the appointment of thechairman and vice-chairman of Sabena (with a right of veto) and couldblock decisions of Sabena's governing board involving changes in strategy,business planning, investment plans and industrial cooperation plans;

—    the chairmen of Air France and Sabena were required to act jointly in theevent of major difficulties involving the functioning of their governing bodiesor strategy implementation;

—    the basic lines of Sabena's future strategy had been determined inconjunction with Air France.

220.
    In that 1992 decision, the Commission classified Sabena, in substance, as a jointventure controlled by the Belgian State and Air France, the latter having rightsgoing considerably beyond those normally conferred on minority shareholders andthe possibility of controlling Sabena's market conduct. Regarding the purpose ofthe agreement, the Commission pointed out that it was designed to developcooperation between Air France and Sabena and to promote all possible synergismbetween the two partners, in particular to create an intra-Community networkcentred on Brussels Airport (Zaventem).

221.
    In the light of that decision of 5 October 1992, of which the parties concerned aredeemed to have been aware, the Commission could reasonably form the view that

it was necessary to prevent Air France's holding in Sabena, which constituted aninstrument of strategic alliance for Air France, from being relinquished in such away that a competitor could assume the privileged position previously occupied byAir France.

222.
    The United Kingdom's view that the shareholding could have been replaced bycooperation agreements, it need merely be noted, fails to take account of thespecial nature of the holding in question, which, although a minority shareholding,gave Air France controlling power over Sabena's commercial conduct and thuswent beyond the influence that a contractual partner might normally exercise. TheUnited Kingdom has failed to demonstrate that Air France could equally haveattained such a privileged position without its holding in Sabena. The specialnature of the alliance between Air France and Sabena also precludes anycomparison with the sale, which in fact took place in March 1994, of Air France'sholding in the Czech company CSA.

223.
    It is true that, shortly after the contested decision was adopted, Air France paidFF 170 million to cover the final instalment of the purchase price for its holding inSabena. There is, however, nothing to justify the view that the disputed aid wasearmarked and used for that purpose. As the French Republic and Air Francehave indicated, that payment was the result of contractual obligations dating from1992, and thus prior to the authorisation of the aid (see the Commission's decisionof 5 October 1992, cited above in paragraphs 218 and 219). Those obligations, asthe French Government has pointed out before the Court, envisaged a schedule forpayments to be made by Air France in 1992, 1993 and, for the final instalment,between 15 July and 31 July 1994. The existence of that final payment obligationon Air France could not reasonably have meant, alone, that aid intended to releaseAir France from its debts and to restructure the company had to be blocked, evenonly partially. Furthermore, in view of the relatively modest amount, that paymentdid not exceed normal investment limits. The Commission was consequentlyentitled to accept that it would be covered by resources deriving from the sale ofassets by Air France and by revenue from its current operations (see paragraphs140 and 141 above).

224.
    It is also established that Air France's holding in Sabena was subsequently sold forFF 680 million (Commission communication concerning the third tranche ofrestructuring aid to Air France, approved by the Commission on 27 July 1994 (OJ1996 C 374, p. 9, at p. 14)). However, as the French Republic and Air France havestressed, without being contradicted, it was not until October 1994 that the BelgianGovernment, the majority shareholder in Sabena, decided that a recapitalisation ofSabena was necessary, which de facto excluded Air France, unable as it was tofollow this recapitalisation. Moreover, Air France's disposal of its holding inSabena was not finalised until July 1995. The Court therefore finds that, on thedate when the contested decision was adopted, the Commission had no indicationthat Air France was seriously considering ending its alliance with Sabena and

disposing of its shareholding. In those circumstances, the Commission was notunder any obligation to infer from the press rumours, to which the applicants havereferred, of the impending acquisition by Swissair of the shareholding in question,that, by July 1994, Air France no longer regarded its holding in Sabena as animportant strategic element in its air transport activity.

225.
    It should be added that the Commission expressly indicated, in its decision of21 June 1995 authorising payment of the second tranche of the disputed aid(communication published in OJ 1995 C 295, p. 2 and p. 5), that the financialimplications of a sale of this shareholding would be taken into account in thecontext of its decision on payment of the third tranche of the aid. The legality ofthose decisions, which are subsequent to that here being challenged, cannot beexamined in the context of the present litigation, which concerns solely the legalityof the decision of 27 July 1994.

226.
    With regard to a possible sale of Amadeus, it must be pointed out that this assetconstitutes Air France's computerised reservation system. Air France has explainedthat it had given Amadeus responsibility for all its ticket reservation operations,that it was completely dependent on that system for ticket distribution and thatsuch a system was vital for the development of its air transport activity, which iswhy the vast majority of airline companies used a similar system. The Court findsthat, in those circumstances, the Commission was reasonably entitled to considerthat Amadeus was a non-disposable asset of Air France inasmuch as it involved anactivity which is closely linked to the operations of any major airline company.

227.
    The same applies with regard to Air France's holding in Jet Tours, which operatesin the tourism sector. Tourism is an economic sector connected, at least in part,to the air transport sector. The Commission could therefore consider Jet Tours asan asset designed to bring tourist customers to both Air France and Air Charter,and was thus entitled to conclude that Air France ought not to be forced to disposeof it.

228.
    Nor may the applicants criticise the Commission for not having required Air Franceto sell all of its minority shareholdings in other airline companies such as Tunis Air,Air Mauritius, Royal Air Maroc and Austrian Airlines. In view of the relativeinsignificance of such sales, a full disposal by Air France of its shareholdings inthose companies would not have had any essential direct effect on its restructuringplan.

229.
    With regard to Air France's statement during the hearing that the disposal of otherassets not specifically mentioned in the contested decision, such as that of GroupeServair, was envisaged in its restructuring plan, and with regard to the possibleconfidentiality of such information, it must be noted that the proceeds from thosesales, although intended to jointly finance implementation of the restructuring plan,were not to be automatically deducted from the amount of aid of FF 20 billionregarded as necessary and authorised by the contested decision. Moreover, even

the FF 7 billion which Air France hoped to realise on the sale of Méridien, onebuilding and 34 aircraft served merely to limit the aid to FF 20 billion, and not toreduce this amount. It was only when it came to payment of the second and thirdtranches of the aid that the Commission reserved the right to take account of AirFrance's overall financial situation by having regard to sales of assets effected in theinterim. The Court takes the view that the financial questions raised in connectionwith those sales, including questions touching on their proportionality andconfidentiality, can therefore be examined only in the light of the decisions dealingwith those second and third tranches. The present litigation does not concern thelegality of those decisions.

230.
    The applicants' argument that Air France itself, in its 1993 Annual Report, defineda series of its assets as 'non-core activities‘, put forward in the context of theirclaim that those assets should have been sold, is factually wrong. It is only theEnglish translation of that report which contains the wording relied on by theapplicants (pp. 26 and 27; Annex 4 to the application in Case T-371/94), whereasthe French text refers to Air France's 'activités non aériennes‘ ('non-airactivities‘) and thus does not contain any value judgment on the assets in question. Since Air France is a French company, it is obvious that the authoritative versionof its annual report is that drafted in French.

231.
    Since the Commission did not commit any manifest error in refraining fromrequiring Air France to dispose of the assets designated by the applicants and theinterveners supporting them, that contention must be rejected.

232.
    It follows from all of the foregoing that, subject to paragraphs 84 to 120 above, allof the contentions alleging breach of the principle of proportionality applicable inregard to State aid must be rejected. The applicants and the intervenerssupporting them have been able to defend their rights and the Court has been ableto exercise its power of judicial review. Consequently, apart from the authorisationof the purchase of 17 new aircraft, the contested decision complies in this regardwith the requirements of Article 190 of the Treaty, and the claim that the reasoningwas inadequate must therefore be rejected.

The contentions that the Commission erred in considering that the aid was intendedto promote the development of economic activity and would not adversely affecttrading conditions to an extent contrary to the common interest

A — The contention that the Commission wrongly authorised aid intended for thedevelopment, not of an economic activity, but of a particular undertaking

Summary of the parties' arguments

233.
    In its application, the applicant in Case T-394/94 argues that the disputed aidbenefits a particular undertaking and does not contribute to the development of aneconomic activity. In authorising it, the Commission clearly sought to ensure thesurvival of Air France as a paramount consideration, instead of weighing thatobjective against the detrimental effects which the aid would have on Air France'scompetitors and on the Community air transport market.

234.
    The Commission considers that the applicant's allegations are clearly devoid of anysubstance. In the contested decision, it emphasised that it had to take into accountthe development of a sector as a whole and not only that of the recipient of theaid. It then extensively investigated whether the aid could benefit from thederogation provided for by Article 92(3)(c) of the Treaty.

Findings of the Court

235.
    In the case of an undertaking on the scale of Air France, which is one of the threelargest European airline companies, genuine restructuring will have the effect offacilitating the economic development of the European civil aviation sector (see,to a similar effect, the Opinion of Advocate General Van Gerven in Case C-305/89Italy v Commission [1991] ECR I-1603, at p. 1630, point 17). Consequently, thiscontention cannot be upheld.

236.
    Furthermore, the applicant expressly acknowledged, in its reply, that it was notalleging that aid paid to a single undertaking was illegal in itself, adding thatnumerous instances of aid granted to individual undertakings are justified becausethey are of benefit to sectors considered as a whole.

237.
    In so far as the applicant claims that the Commission unilaterally favoured AirFrance by taking account only of the positive aspects of its restructuring andoverlooking its negative aspects, its arguments will be examined below in theirappropriate context.

B — The contention that the Commission wrongly authorised aid which adverselyaffected trading conditions to an extent contrary to the common interest

Summary of the parties' arguments

238.
    The applicants take the view that the aid affects trading conditions to an extentcontrary to the common interest. It serves to lower Air France's costs artificiallyand thereby shifts the burden of cost adjustment on to unsubsidised airlines. Theapplicants point out that the Commission itself took the view, in France vCommission (cited above in paragraph 79, paragraph 44), that the artificialmaintenance in existence of a company weakens the competitive position of otherproducers which have had to carry out the necessary reorganisation of their

activities without the benefit of State aid. In its judgment in that case (paragraph50), the Court of Justice upheld the Commission's decision refusing to authoriseState aid on the ground that it had reduced the competitiveness of othermanufacturers within the Community, at the risk of forcing them to withdraw fromthe market even though they had previously been able to continue their activitiesby virtue of restructuring financed by their own resources. The applicants alsorefer to the Opinion of Advocate General Sir Gordon Slynn in Germany vCommission (cited above in paragraph 58) and to paragraph 26 of the judgment inPhilip Morris (cited above in paragraph 79), to the effect that the Commission,when applying Article 92(3)(c) of the Treaty, must take account of the Communitycontext, in particular the overall position in the sector in question.

239.
    The applicant in Case T-394/94 emphasises that the contested decision confirmsthat the aid in question distorts competition within the EEA. It points out that, inits observations submitted to the Commission in the course of the administrativeprocedure, it had suggested that the Commission should undertake an analysis ofeach geographical market affected by the aid, namely the individual routes onwhich the air carriers concerned were in direct competition. It considers thatargument to be supported by the judgment in France v Commission, cited above inparagraph 79, at paragraph 50, where the Court of Justice stated that the effect ofthe aid on all competitors of the beneficiary undertaking had to be examined. Theapplicant states that it is in competition with Air France on the routes betweenLondon and Nice, London and Paris, and Glasgow and Paris. However, theCommission concluded that any adverse effects on trading conditions wereacceptable. By so doing, it favoured Air France, a public-sector undertaking, overthe applicant, an independent private-sector undertaking. Consequently, theCommission discriminated in such a way as to involve distortion of competition toan extent contrary to the common interest (Case 304/85 Falck v Commission [1987]ECR 871, paragraph 27).

240.
    In the same context, the applicant in Case T-394/94 alleges that the Commissioninfringed Article 190 of the Treaty by failing to provide adequate reasoning tosupport its view that the aid does not affect trade to an extent contrary to thecommon interest and to reply properly to the observations which the applicant filedduring the administrative procedure. The applicants in Case T-371/94 also submitthat the Commission failed to consider seriously the third-party comments filed inresponse to its communication of 3 June 1994. Before the Court, they haveproduced detailed examples listing individual routes with the estimated marketshares of the various airline companies competing on those routes (point 21 andfootnotes 33 to 42 in the application in Case T-371/94).

241.
    Likewise, the Maersk companies take the view that the Commission should havegiven greater consideration to the effect of the aid on small and medium-sizedcarriers operating on regional routes. It thus failed, they claim, to address theadverse effect of the disputed aid on competition in regional air services. They

state in this regard that they operate the route between Lyon and Birmingham andwished, from 16 October 1995, to operate between Billund and Paris (CDG). Theeffects of State aid, they consider, are apparent not only in the narrow marketserved by the carrier receiving the aid, defined by reference to city pairs, but alsoin a wider passenger market and on indirectly competing routes.

242.
    The indirect effects of the contested decision on smaller carriers operating eitherfeeder services to the main hubs, from which the major carriers operate, or onindirectly competing routes is illustrated by reference to the service operated byMaersk between Birmingham and Lyon. This route competes indirectly with, andis competitively influenced by, the London (Heathrow) to Paris route, as well as theBirmingham-Paris route. Air France's load factor on the Birmingham-Paris routewas, according to the figures for 1992, merely 32%, compared with 61% for itscompetitors. Efficient airlines may be forced off routes or even precluded fromdeveloping new routes if the presence of a State-subsidised airline causesdiminishing rates of return.

243.
    They add that the Commission did not sufficiently consider the effect which thedisputed aid would have on potential competition in the air-transport sector. Thatview is illustrated by the Copenhagen-Paris route, on which Air France's loadfactor, according to the figures for 1992, was a mere 49%, compared with 61% forits competitors. Although the full effect on potential competition cannot bemeasured, it is evidenced by Maersk's decision, at the time when the contesteddecision was adopted, to postpone plans to introduce a service between Billund andParis (CDG).

244.
    The Kingdom of Sweden also takes the view that the disputed aid increases thepressure on competing regional airlines to abandon marginal routes. Suchcompanies can suffer severe adverse effects from measures taken by one of thebiggest market participants, even if they are limited as a whole, while other largercompanies are not affected to the same extent.

245.
    At the hearing, the Swedish and Norwegian Governments stated that theScandinavian airline companies competing with Air France on routes betweenFrance and the main cities in Scandinavia also have internal routes which sufferfrom low frequency because of an extremely low population density but which arenecessary in the interests of the economic development of outlying regions. Suchroutes are extremely vulnerable to any distortion of competition by State aidgranted to a large competitor such as Air France. The major companies are onlyrarely interested in peripheral routes. Distortions in competition on high-densityroutes could therefore lead to a reduction in, or the disappearance of, services tooutlying regions. This, they argue, would adversely affect the common interest inensuring that there are adequate air connections even in outlying regions of theEEA.

246.
    The applicant in Case T-394/94 points out that there is no evidence from thecontested decision that the Commission discharged its duty to weigh the interest inensuring Air France's survival against the inevitable adverse effect on competitioncaused by the injection of the massive amount of FF 20 billion in aid. TheCommission has at no time explained why it considered that the beneficial effectsof the restructuring plan were sufficient to outweigh its adverse effects, limitingitself to merely examining the beneficial effects of the aid for its beneficiary.

247.
    It points out that Air France has accumulated large losses during recent years,despite the injection of FF 5.8 billion in aid authorised by the Commission. In viewof the continued and increasing losses made by Air France, the Commission should,it argues, have noticed in retrospect that its investigations, based at the time oninformation supplied by Air France, were fundamentally flawed. In contrast to AirFrance, most of its competitors, unsubsidised and independent airlines, have hadto adopt radical cost-cutting and restructuring measures in order to be able toadapt to a rapidly changing commercial environment within the liberalised market. These necessary survival measures could be taken only by means of makingsubstantial reductions in workforce, abandoning non-profitable routes, cancellingorders for new aircraft, withdrawing investment in other airlines and selling non-core assets. For example, the applicant embarked on a serious cost-cuttingcampaign involving inter alia shedding jobs and abandoning non-profitable routes,including that between Edinburgh and Paris, which continues to be operated by AirFrance.

248.
    The Kingdom of Denmark and the United Kingdom add that the Commissionought to have compared Air France with other companies which have restructuredwith or without State aid. Only by so doing could the Commission have built upa picture of the market and the companies operating on it, which is a preconditionfor a proper exercise of its discretion. The experience of some of Air France'scompetitors demonstrates what can be achieved to restore the viability of a majorinternational airline without State aid. Thus, British Airways withdrew from 16international routes, sold a large number of aircraft and reduced its workforce by13 500 in the 1980s. In the case of Lufthansa, restructuring has necessitated a 17%reduction in the number of employees since 1992.

249.
    The applicants, the Kingdom of Denmark and the United Kingdom take the viewthat the 16 conditions to which the Commission made approval of the aid subjectare ineffective and therefore incapable of preventing the aid from having adverseeffects on trading conditions to an extent contrary to the common interest. Theystress that the conditions are limited to the duration of the restructuring plan, thatis to say, they were to last until the end of 1996, whereas the aid will continue tohave effects on Air France and the air transport market beyond that period. Theerror in limiting application of the conditions to the duration of the Plan isillustrated by the merger between Air France's European operations and those ofAir Inter proposed for early 1997. The Commission's action in laying down such

conditions to be complied with by the French Government, instead of subjectingthe restructuring plan to detailed examination is, it is argued, contrary to the rulesgoverning the Commission's exercise of its discretion in this area. The Commissioncould not avoid carrying out itself the assessment which Community law requiresby instead laying down a number of conditions.

250.
    The applicants and the interveners supporting them stress, in particular, that it ispossible for Air France to circumvent the conditions of authorisation which thecontested decision imposes on the French State. For example, the holdingcompany controlling Air France and Air Inter could allow Air Inter, which is notsubject to those conditions, to adopt measures which Air France is prohibited fromadopting. Were the contested decision not to be annulled, any recipient of Stateaid would be in a position to set up subsidiaries or sister companies in order toavoid the conditions of authorisation and to continue to operate on the marketwithout any restriction.

251.
    The Commission considers that the applicants wrongly assimilate aid which distortscompetition and affects trade between the Member States, within the meaning ofArticle 92(1) of the Treaty, to aid which adversely affects trading conditions to anextent contrary to the common interest, within the meaning of Article 92(3)(c). Itstates that it at no time considered that the disputed aid would not distortcompetition or affect trade. However, such aid does not necessarily constitute aidadversely affecting trading conditions to an extent contrary to the common interest. In the Commission's view, the applicants are proceeding on the premiss that anyeffort by Air France to survive will harm its competitors. That proposition, itargues, is unsustainable on a proper interpretation of Article 92(3)(c) of the Treatyand Article 61(3)(c) of the EEA Agreement.

252.
    In France v Commission, cited above in paragraph 79, the Commission took theview that the authorised aid was a rescue measure which, moreover, did not satisfythe criteria laid down for that type of aid. Such considerations, the Commissionstresses, are absent in the present context. The aid here being contested is not arescue measure, but is effectively linked to a genuine restructuring plan. There istherefore no inconsistency between the Commission's position in France vCommission and its position here.

253.
    The Commission adds that the passage from Advocate General Sir Gordon Slynn'sOpinion in Commission v Germany (cited above in paragraph 58) referred to thequestion whether the aid involved could be regarded as an aid to facilitate thedevelopment of certain economic activities, and not to the question whether itadversely affected trading conditions to an extent contrary to the common interest. Likewise, the excerpt from the judgment in Philip Morris (cited above in paragraph79) relates to the first requirement of Article 92(3)(c) of the Treaty and not to theadverse effect on trading conditions.

254.
    The Commission states that it did examine whether the aid could be considered tobe compatible in accordance with Article 92(3)(c) of the Treaty and Article61(3)(c) of the EEA Agreement. For the reasons given in its decision, it was in aposition to conclude that the aid could benefit from the derogation provided forand, provided that certain commitments were respected and certain conditionssatisfied, was compatible with the common market. It explained in the contesteddecision that, in analysing the effects of the aid within the EEA, it took intoaccount the increased liberalisation of air transport following adoption of the 'thirdpackage‘ and was satisfied that the negative effects of the aid would not bereinforced through the use of exclusive rights or privileged treatment in favour ofAir France.

255.
    The Commission submits that some of the commitments which it obtained from theFrench Government were unprecedented or of unparalleled stringency. No othergovernment had undertaken to privatise a company which was the beneficiary ofaid (commitment No 2) and never before had restrictions been imposed on pricingfreedom (commitment No 9). The Commission also points out the fact that onlyhalf the total amount of the aid could be paid immediately, payment of the balancein two tranches being subject to compliance with a number of conditions and toCommission authorisation (Article 2 of the contested decision). Furthermore, theFrench Government undertook not to grant to Air France any new appropriationor any other form of aid (commitment No 5) or to interfere with its managementfor reasons other than those connected with its status as a shareholder(commitment No 4).

256.
    In response to the criticism, voiced by the Maersk companies, that it excluded therole of small and medium-sized air carriers from its analysis, the Commissionstresses that its examination was not confined to the major European carriers. Inascertaining that the aid would not adversely affect trading conditions to an extentcontrary to the common interest, it had to ensure, in particular, that it was not usedto undercut prices and that capacity was not increased to an extent greater thanmarket growth. Those concerns applied to all Air France's competitors and to theEuropean civil aviation sector as a whole.

257.
    Regarding the argument that it failed to examine the adverse effect of the aid oncompetition in regional air services, the Commission submits that the intervenershave failed to provide any evidence whatever to substantiate their claim that theaid discourages the development of services to and from regional airports.Concerning the alleged effects of the aid on a market wider than that actuallyoperated by Air France, on indirectly competing routes and on potentialcompetition, the Commission states that the allegations are without foundation. Itdoes not know what Maersk's postponement of their plans to introduce a Billund-Paris service may demonstrate. Their hesitation, the Commission submits, is morelikely to have resulted from British Airways' entry on the Copenhagen-Paris routein 1993, immediately seizing 18% of the market. On a general level, the

Commission takes the view that the contested decision satisfies the requirementsof Article 190 of the Treaty as regards the evaluation of the impact of the aid ontrading conditions.

258.
    Air France considers that everything in the contested decision goes to show that theeffects of the aid were assessed in a Community context. The Commission analysedthe situation of the European aviation industry, its prospects and the effects of theaid on Air France's competitive situation, taking into account the increasedliberalisation in air transport. Finally, the very object of the commitments enteredinto by the French Government was specifically to prevent Air France from beingable to use the aid to the detriment of its competitors.

Findings of the Court

1. As regards the statement of reasons

259.
    In the light of the contentions of the applicants and the interveners supportingthem, it is appropriate first to ascertain whether the contested decision isadequately reasoned with regard to the assessment of the effects of the aid on thecompanies competing with Air France and on the relevant air routes. The Courtcalled on those applicants and interveners to submit the observations which theyhad lodged with the Commission during the administrative procedure in theircapacity as parties concerned within the meaning of Article 93(2) of the Treaty (seeparagraph 33 above).

260.
    In accordance with what was considered in paragraphs 89 to 96 above, therefore,the Court must examine whether the statement of reasons in the contested decisionindicates clearly and unequivocally the Commission's reasoning, particularly in viewof the essential complaints concerning the assessment of the contested aid plan inregard to its effects which the parties concerned drew to the Commission'sattention during the administrative procedure.

261.
    On a complete reading of the observations submitted at the Court's request, ittranspires that some of those parties had, in particular, insisted that theCommission should assess the effects of the aid on the airline companies incompetition with Air France and on the different air routes concerned. It wasasserted that the aid would allow companies belonging to the Air France group tocontinue to exploit their dominant position on the domestic French market. Furthermore, since the relevant geographical market in the air transport sectorconsists of routes which users consider to be substitutable, that is to say, city-to-cityroutes, the issue of substitutability ought to be analysed. Other more competitivecompanies might be able to take up routes previously served by Air France. TheCommission, it was argued, should also be attentive to the effects of the aid on thesituation of small airline companies, which often depend on a number of specific

routes. Receipt of State aid by a major carrier such as Air France could affect thecompetitive balance on these routes.

262.
    A number of the parties concerned stressed the impact which the contested aidwould have on competition on international routes outside the EEA. It wasclaimed that Air France had advertised aggressively in the Netherlands by offeringvery low rates for flights via Paris to, inter alia, Hong Kong, Singapore, Jakarta,Tokyo, Cape Town and Johannesburg (KLM, observations, p. 1). Air France wasin competition on 8 of the 20 international routes on which competition was fiercest(United Kingdom, observations, p. 6). The other Community companies presenton extra-Community routes were affected by reason of the potential substitutabilitybetween, for instance, Rome and London for a flight to New York. There was thuscompetition on all routes between Europe and North America and between Europeand the Far East. British Airways, for example, was in competition with othercompanies in regard to flights from Rome to New York and from Paris to NewYork. The domestic market was too small for many European companies. Consequently, extra-Community routes were vital for their long-term survival, andmany therefore relied in large measure on transatlantic traffic (pp. ii, 57 and 58 ofthe Lexecon Report on the competitive impact of State aid on the European airlineindustry, presented by British Airways during the administrative procedure andforming Annex 17 to the application in Case T-371/94).

263.
    The Commission, it must be borne in mind, was itself aware of the problems raisedby the effects which the aid would have on the competitive position of Air France,and had indeed already declared, in the communication of 3 June 1994, that it wasnecessary to examine those effects with regard to international and domestic routeson which Air France competed with other European carriers, adding that AirFrance's restructuring plan did not include an analysis of the network and its futuredevelopment (OJ 1994 C 152, at p. 8).

264.
    In the contested decision, the Commission, when considering whether the aidaffected conditions of trade to an extent contrary to the common interest, pointedout that it had stated, when the administrative procedure was instituted, that it hadto analyse the effects of the aid on Air France's competitive position on bothinternational and domestic routes on which it was in competition with otherEuropean companies. The Commission further stresses that the FrenchGovernment had undertaken, for the duration of the restructuring plan,

—     not to increase the number of aircraft in Air France's operating fleet beyond146 (commitment No 7);

—     not to increase Air France's supply beyond the level reached in 1993 forroutes between France and the other EEA countries (commitment No 8);

—     to ensure that Air France would not apply tariffs below those of itscompetitors for an equivalent supply on the routes that it operated withinthe EEA (commitment No 9);

—     not to grant preferential treatment to Air France in the matter of trafficrights (commitment No 10);

—     to ensure that Air France would not operate more scheduled routesbetween France and the other EEA countries than it did in 1993, that is tosay, 89 routes (commitment No 11);

—     to limit the supply of Air Charter to its 1993 level (commitment No 12)(contested decision, OJ, pp. 79, 86, 88 and 89).

265.
    The Commission considers that those commitments, expressed as conditionsgoverning authorisation of the aid, involved severe limitations on capacity, supplyand pricing freedom for Air France, and that such limitations were necessary toprevent the aid being used to transfer the airline's difficulties to its competitors. The commitments prevented Air France from pursuing an aggressive price policyon all the routes which it operated within the EEA (contested decision, OJ, p. 86).

266.
    With more particular regard to the effects which the aid might have on thedomestic French market, the Commission also points out that:

—     the French authorities undertook to modify, in accordance with Decision94/290/EC of 27 April 1994 on a procedure relating to the application ofCouncil Regulation (EEC) No 2408/92 (Case VII/AMA/II/93 — TAT — Paris(Orly)-London) (OJ 1994 L 127, p. 22), the traffic distribution rules for theParis airport system in such a way as to make them non-discriminatory(commitment No 15);

—     the French authorities undertook to ensure that the work required to adaptthe terminals at Orly South, reserved for international traffic, and OrlyWest, reserved for domestic traffic, would not affect competitive conditionsto the detriment of the airline companies operating there (commitmentNo 16);

—     it adopted, on 27 April 1994, a decision under which France was requiredto authorise Community carriers to exercise their traffic rights on routesbetween Paris (Orly) and Toulouse and between Paris (Orly) and Marseillesat the latest by 27 October 1994 (contested decision, OJ, pp. 87 and 88).

267.
    On a reading of its reasoning as thus stated, it is clear that the Commission did notexamine the competitive position on a 'route-by-route‘ basis, although such anexamination had been proposed by the parties concerned and envisaged by theCommission itself. Instead of analysing in detail the effects which the aid would

have on the various routes served by Air France, the Commission chose to imposeon the French State the 16 conditions governing authorisation of the aid set out inArticle 1 of the contested decision. It thus took the view that those conditions wereappropriate and sufficient to ensure that the effects of the aid on the civil aviationsector coming within the scope of Article 92 of the EC Treaty and Article 61 of theEEA Agreement would not be contrary to the common interest.

268.
    It should be pointed out that the conditions relating to the maximum number ofAir France's aircraft (No 7), the prohibition of conferring preferential treatmenton Air France in the matter of traffic rights (No 10) and the limitation on AirCharter's supply (No 12), the scope of which had no geographical limits, cover inany event the extent of the EEA. The conditions regarding Air France's supply(No 8), its pricing practices (No 9), the maximum number of routes operated(No 11), the traffic distribution rules for the Paris airport system (No 15) and therenovation work at the two Orly terminals (No 16) specifically cover thegeographical market within the EEA, including the domestic French market. TheCommission expressly stated that, in its opinion, those conditions limited AirFrance's freedom and prevented it from pursuing an aggressive price policy 'on allthe routes operated by the French carrier within the European Economic Area‘(contested decision, OJ, p. 86).

269.
    In the context of the reasoning given for the decision, the Court takes the view thatthis manner of addressing the problem indicates that the Commission did in factconcentrate on the competitive situation within the EEA, it being understood thatthe question whether the above conditions governing authorisation are in factsufficient and appropriate to that end falls within the examination of the substance. Even if the statement of reasons did not follow the observations of the partiesconcerned, who had suggested carrying out a 'route-by-route‘ examination, it showsclearly that the Commission considered it appropriate to use the mechanism of the16 conditions of authorisation imposed on the French State in place of such anexamination. The parties concerned could thus identify the Commission's reactionto their observations, determine whether the approach adopted by the Commissionwas well founded, and defend their interests before the Community judicature bychallenging the full and adequate nature of the mechanism of the 16 conditionswith regard to the competitive position obtaining within the EEA.

270.
    It must, however, be held that the statement of the grounds of the contesteddecision does not contain the slightest indication as to Air France's competitiveposition outside the EEA. First, there is no analysis of Air France's internationalnetwork, taking account of the routes on which it is in competition with otherairline companies based within the EEA. Second, the conditions of authorisationrelating to the level of Air France's supply (No 8), its pricing practices (No 9), andthe maximum number of routes operated (No 11) do not cover the connectionswhich Air France operates or intends to operate to non-EEA countries, that is tosay, long-haul — in particular transatlantic — flights. From the Commission's point

of view, Air France — financially strengthened by the aid authorised — was thusentirely free to extend its capacity, increase the number of its connections, and toapply tariffs as low as it wished on international routes outside the EEA.

271.
    However, Air France's restructuring plan expressly envisaged the development oflong-haul flights and an increase in frequencies on profitable routes, and the Frenchauthorities had announced a 10.2% increase in Air France's supply on long-haulflights (contested decision, OJ, pp. 76 and 77). In addition, the parties concernedhad drawn the Commission's attention, first, to the problem of defining the relevantmarket in regard to air transport, which, in their view, consisted of those specificroutes which users regarded as substitutable, second, to the fact that Air Francehad attempted, by means of an advertising campaign, to attract customers in theNetherlands for flights via Paris to non-EEA destinations, Air France thereby itselfdemonstrating that such flights were largely substitutable by means of appropriatefeeder traffic, and, third, to the vital character of such flights for the long-termsurvival of several European companies.

272.
    It should be added that, in its decision of 5 October 1992 (Air France/Sabena, citedabove in paragraphs 218 and 219), the Commission defined the relevant market asregular air transport connecting two geographical areas, that is to say, a bundle ofair routes, provided that there was substitutability between the routes making upthat bundle, such substitutability resulting from different factors such as, inparticular, the length of the routes, the distance separating the various airports atthe extremities of each of the routes making up the bundle, or the frequency offlights on each route (point 25). Consequently, the Commission concluded, inregard to connections between Europe and French-speaking countries in Sub-Saharan Africa, that the relevant market could be defined as a bundle of routesbetween all of the EEA departure points, on the one hand, and each of theindividual destinations in Africa, on the other (point 39).

273.
    The Court takes the view that, having regard to that decision-making practice andbearing in mind the observations which the parties concerned made in thatconnection, the Commission was obliged to set out its views on the problem of non-EEA air routes served by Air France, the beneficiary of the authorised aid, incompetition with other companies within the EEA. As the Court of Justice heldin Bremer Vulkan (cited above in paragraph 94, paragraphs 53 and 54), informationas to the situation on the markets in question, in particular the positions of theundertaking benefiting from the aid and of competing undertakings, constitutes anessential element in the reasoning of a decision relating to the compatibility ofprojected aid with the common market within the meaning of Article 92 of theTreaty. Although that judgment was delivered in relation to Article 92(1), thisCourt holds that such a statement of reasons is also required under Article 92(3)(c)of the Treaty and Article 61(3)(c) of the EEA Agreement in regard to the questionwhether the aid adversely affects trading conditions to an extent contrary to thecommon interest.

274.
    Since it did not extend conditions of authorisation Nos 8, 9 and 11 to non-EEAroutes served by Air France, the Commission was required to assess — in itsexamination of the relevant market — the potential substitutability of the non-EEAflights operated, for example, from Paris, London, Rome, Frankfurt, Copenhagen,Amsterdam or Brussels, and thus the potential competition, in regard to thoseflights, between the airline companies whose hubs are situated in any of thosecities.

275.
    The importance of such a statement of reasons is illustrated by the figures whichthe applicants in Case T-371/94 have submitted to the Court, without beingchallenged, for the purpose of demonstrating that a large portion of the turnoverand operating profits of British Airways, SAS and KLM is realised on routes tonon-EEA destinations, in particular on connections to the United States, Canada,Africa, the Middle East, India and the Far East (application, paragraph 212 andfootnote 282). As the Court of Justice accepted in Bremer Vulkan (cited above inparagraph 94, paragraph 34), such factors occurring after the date on which thecontested decision was adopted may be taken into consideration as illustrating theobligation to state reasons devolving on the Commission. In any event, a numberof the parties concerned had already pointed out to the Commission that routesoutside the Community, and in particular transatlantic routes, were vital for thesurvival of many European companies and that competition on those routes wasthe fiercest of all.

276.
    In addition, it is obvious that an increase in Air France's capacity and its leadershipin terms of low tariffs on a given non-EEA route from its hub at Paris (CDG)Airport may have repercussions on feeder traffic to that hub. If the economicsignificance of the Paris hub increases at the expense of other hubs within theEEA, the feeder traffic to Paris will increase proportionately and, consequently, atthe expense of the feeder traffic to those other hubs. The argument of the partiesconcerned regarding the situation of the small airline companies, frequentlydependent on a few specific routes, thus appears to be fundamental, and theCommission ought therefore also to have set out its views in this regard. By wayof illustration, it should be added that, as British Midland pointed out during thehearing before the Court, without being challenged, 30% of its passengers havebeen inter-line passengers travelling to other destinations on long-haul routes. Consequently, the Commission was not entitled to ignore the position of the smallcompanies engaged in feeder traffic.

277.
    The problem posed by the non-EEA routes and associated feeder traffic cannot beregarded as being resolved by the combined effect of conditions of authorisationNo 7 (limitation on the number of Air France's aircraft) and No 9 (restriction onthe price leadership of Air France in feeder traffic within the EEA), or by AirFrance's duty to attain the objectives of its restructuring. If it is true that it is thenon-EEA routes which are the most profitable, Air France will have every interestin using the greatest number of its aircraft on the most profitable international

routes, without in any way compromising the success of its restructuring. As forfeeder traffic, suffice it to note that nothing obliges Air France to assumeresponsibility for this itself, since such traffic towards the Paris hub can be assuredby any airline company distinct from Air France, such as Air Inter, which is notsubject to the conditions of authorisation imposed by the Commission (seeparagraph 215 above); the economic significance of condition No 9, in so far as itcovers the feeder traffic ensured by Air France within the EEA, thus appearsinsignificant in relation to the global problem posed by non-EEA routes.

278.
    Finally, while condition of authorisation No 12 imposes absolute limits of supply onAir Charter, which thus also relate to routes outside the EEA, the economicsignificance of Air Charter with 17 aircraft is so minimal in relation to that of AirFrance that the existence of this condition is not, by itself, such as to compensatefor the lack of reasoning in regard to the position of Air France on these routes. The same goes for condition of authorisation No 10 prohibiting the Frenchauthorities from granting preferential treatment to Air France in the matter oftraffic rights. While this condition is also directed at rights relating to non-EEAroutes, it can benefit only those airline companies capable of profiting by it. Theseare, in substance, companies from non-member countries and French companiessuch as Air France, Air Inter, Air Charter, Air Liberté, Corsair, AOM, TAT andEuralair, in the event of their wishing to serve these routes from and to France. In contrast, other European companies which, in competition with Air France,operate non-EEA routes essentially from their own hubs outside France benefitfrom condition No 10 only to an insignificant extent.

279.
    It is true that the Commission, Air France and the French Republic have arguedduring the present proceedings that traffic rights on non-EEA connections, inparticular transatlantic connections, were governed by bilateral agreements and thata restriction imposed with regard to pricing, capacity and number of routes wouldhave been detrimental to Air France by reducing its competitiveness on outsidemarkets. They have submitted that such a restriction would have benefited onlynon-EEA companies and would therefore have been manifestly contrary to thecommon interest. That reasoning, however, as advanced by the agents of theCommission and the interveners before the Court, does not feature in the contesteddecision. It is thus a line of argument that is not covered by collegiateresponsibility, and therefore cannot be accepted. Consequently, it cannot remedythe defective reasoning by which the contested decision is vitiated on this point (seeparagraphs 116 to 118 above).

280.
    It follows from all of the foregoing that the statement of reasons in the contesteddecision does not satisfy the requirements of Article 190 of the Treaty so far asconcerns the assessment of the effects of the aid on the competitive position of AirFrance in regard to its network of non-EEA routes and the associated feedertraffic. That defect in the statement of reasons means that the Court cannotexamine whether the arguments put forward on those points are well founded (seeparagraph 238 et seq. above). Nor, moreover, is the Court in a position to rule on

the argument relating to Air France's pricing practices on its non-EEA network,allegedly operational measures financed by the aid (see paragraphs 142 and 143above).

281.
    The Court is, however, able to examine whether the Commission's assessment ofthe effects of the aid on Air France's competitive position within the EEA canresist the substantive arguments advanced by the applicants and the intervenerssupporting them.

2. As regards the soundness of the reasoning

282.
    It must first of all be borne in mind that economic assessments pursuant to Article92(3)(c) of the Treaty, in respect of which the Commission enjoys a broaddiscretion, must be made in a Community context (Philip Morris, cited above inparagraph 79, paragraph 24); this means that the Commission is under anobligation to examine the impact of the aid on competition and intra-Communitytrade (Joined Cases T-447/93, T-448/93 and T-449/93 AITEC and Others vCommission [1995] ECR II-1971, paragraph 136). In the present context, since thecontested decision was also adopted pursuant to Article 61 of the EEA Agreement,the context to be examined, as defined by the above case-law, must be extendedto the European Economic Area.

283.
    It should be added that, in its judgment in Case 47/69 France v Commission [1970]ECR 487, at paragraph 7, the Court of Justice ruled that, in order to determinewhether aid adversely affects trading conditions to an extent contrary to thecommon interest, it is necessary to consider, in particular, whether there is animbalance between the charges imposed on the undertakings concerned on the onehand and the benefits derived from the aid in question on the other. This Courtconcludes that the Commission is under an obligation, when examining the impactof State aid, to weigh the beneficial effects of the aid against its adverse effects ontrading conditions and the maintenance of undistorted competition, as it has itselfpointed out in its XIVth Report on Competition Policy (1984, p. 130, point 202).

284.
    As to whether the Commission balanced those factors in the present instance, itmust be noted in the first place that the contested decision traced the history of thevarious restructuring plans adopted by Air France since 1991 for dealing with itsfinancial problems: CAP '93, under which Air France was granted FF 5.8 billion,PRE 1 and PRE 2 (contested decision, OJ, p. 74). The Commission thus took intoaccount the background to the disputed plan, and in particular the FF 5.8 billionalready paid as aid, when it assessed the possible positive and negative effects ofthe aid contested here.

285.
    In noting that the French Government was the majority shareholder in Air France(contested decision, OJ, p. 76) and in requiring the French authorities to begin the

process of privatising Air France (Article 1(2) of the contested decision, OJ, p. 88),the Commission thus took account of the fact that Air France belonged to thepublic sector. The fact that the Commission approves aid paid to a publicundertaking does not per se amount to discrimination against private undertakingsin competition with the beneficiary of the aid. As is clear from paragraph 19 of thejudgment in Italy v Commission (cited above in paragraph 125), the Commissionmust, even in the area of State aid, respect the principle of equal treatment asbetween public and private undertakings. It follows that the Commission couldauthorise the disputed State aid without discriminating against Air France's privatecompetitors, provided that the aid did not adversely affect trading conditions to anextent contrary to the common interest.

286.
    Nor was the Commission obliged, in the present context, to compare therestructuring measures envisaged by Air France with those undertaken by otherairline companies, nor, a fortiori, to require Air France's restructuring to be basedon that of any other company (on this, see paragraphs 135 and 211 above). Theadequacy of an undertaking's restructuring measures depends on its individualsituation and on the economic and political context within which the measuresconcerned were adopted. In the present instance, the Commission found, when thecontested decision was adopted in July 1994, that there had been some economicrecovery within the European civil aviation sector, that the prospects for that sectorwere now reasonably favourable and that there was no structural overcapacity crisis(contested decision, OJ, pp. 81 and 82). On the basis of those factors, therestructuring measures envisaged by Air France and accepted by the Commissioncould justifiably be less severe than those undertaken by other airlines in the lightof their specific situations and contexts.

287.
    Although, as has already been found above (paragraph 267), the Commission, inits examination of the impact which the aid might have on competition and tradewithin the EEA, did not assess the competitive position on a 'route-by-route‘ basisand thus did not examine the conditions for direct or indirect competition withother airline companies in regard to each of the routes actually or potentiallyserved by Air France, it did none the less impose on the French State a series ofconditions designed to limit Air France's margin of manoeuvre, particularly inregard to capacity, supply and pricing (see paragraphs 264 to 268 above).

288.
    The Court takes the view that the basic choice thus made by the Commission fallswithin its discretion in this area. First, the Commission may in principle make adecision authorising aid under Article 92(3)(c) of the Treaty subject to conditionsfor ensuring that authorised aid does not alter trading conditions to an extentcontrary to the general interest (Joined Cases T-244/93 and T-486/93 TWD vCommission [1995] ECR II-2265, paragraph 55). Second, Air France, which is oneof the three major European airline companies, operates throughout the EEA. The Commission was therefore entitled to form the view that the effects of the aidhad to be assessed, not in relation to any one individual connection or specificregion, but in relation to the EEA considered as a whole. It does not appear

mistaken to cover, for that purpose, the whole of Air France's area of operationswith a network of obligations designed to protect all of its actual or potentialcompetitors against any aggressive policy which it might be tempted to pursue, afortiori since the Commission reinforced the mechanism of the conditions ofauthorisation by requiring, in the third paragraph of Article 2 of the contesteddecision, that the fulfilment of those conditions be verified by independentconsultants.

289.
    That conclusion is not gainsaid by the approach taken by the Commission in, interalia, its decisions in Aer Lingus (cited above in paragraph 55, OJ 1994 L 54, atp. 39) and Olympic Airways (cited above in paragraph 174, OJ 1994 L 273, atpp. 30 and 35), in which it did assess certain specific routes served by the airlinecompanies in question. For those two companies, which are relatively modest insize when compared with Air France, a particular route may be of fundamentalimportance for their operations, thus justifying examination of the impact of aidgranted to one of those companies being concentrated in that way, whereas the airnetwork served by Air France within the EEA is more uniform in character.

290.
    In so far as the effectiveness of the conditions imposed on the French State hasbeen challenged before the Court, with particular regard to the possibilities for AirFrance to circumvent those conditions, it must be noted that the legal and practicalutility of such conditions of authorisation lies in the fact that, if the recipientundertaking were to fail to observe them, it would be for the Member Stateconcerned to ensure proper implementation of the authorisation decision and forthe Commission to assess whether it was appropriate to demand that the aid berepaid (Case T-380/94 AIUFFASS and AKT v Commission [1996] ECR II-2169,paragraph 128). It should be borne in mind that, in Case C-294/90 BritishAerospace and Rover v Commission [1992] ECR I-493, paragraph 11), the Court ofJustice held that, if a State does not comply with the conditions imposed by theCommission in a decision approving aid, the Commission is entitled, under thesecond subparagraph of Article 93(2) of the Treaty, to refer the matter directly tothe Court of Justice by way of derogation from Articles 169 and 170 of the Treaty.

291.
    Having regard to the way in which the conditions underlying a decision to authoriseaid thus operate, the mere assertion that one of those conditions will not becomplied with cannot cast doubt on the legality of that decision (paragraph 128 ofAIUFFASS and AKT v Commission, cited above in paragraph 290). In general, thelegality of a Community act cannot depend on the possible existence ofopportunities for circumvention or on retrospective considerations of its efficacy(Schroeder v Germany, cited above in paragraph 81, paragraph 14).

292.
    All the arguments challenging the legality of the contested decision on the groundthat control of the implementation of the conditions of authorisation imposed onthe French State would be ineffective, or that it would be possible for Air Franceto circumvent those conditions, must therefore be excluded from the Court's

examination as having no bearing on the issue. In so far as it might subsequentlytranspire that those conditions have not been fully complied with or that Air Francehas in fact succeeded in abusively circumventing them, it would in that case be forthe Commission to envisage a possible reduction in the authorised amount whenit came to the payment of the second and third tranches of the aid or to considerwhether the French Republic ought to be required to recover in full or in part theaid paid.

293.
    Consequently, only those arguments alleging that the conditions of authorisationwere inherently and manifestly inappropriate, and in particular legally inadequatein scope, may be capable of calling in question the legality of the contesteddecision.

294.
    The Court finds that, contrary to the argument advanced in this connection by theapplicant in Case T-394/94, the Commission did not err in limiting the scope ofmost of the conditions to the duration of Air France's restructuring plan. It is clearthat the restrictions imposed for the purpose of limiting the impact of the aid couldnot be of unlimited duration. In the specific circumstances here, it does not appeararbitrary for the duration of the conditions to end on completion of theimplementation of the restructuring plan.

295.
    It is in the light of the above considerations that the arguments directed against anumber of specific conditions of authorisation must now be examined. Thatexamination will show conclusively whether the Commission, instead of authorisingthe aid and attaching several conditions of authorisation to its decision, ought tohave decided that the aid adversely affected trading conditions to an extentcontrary to the common interest.

296.
    Subject to that proviso, the argument that the method chosen by the Commissionto examine what impact the aid would have on the common interest was mistakencannot be upheld.

(a) Condition of authorisation No 1

297.
    This condition required the French authorities to ensure that 'the entire amountof aid shall benefit Air France alone. Air France means the Compagnie NationaleAir France, as well as any company of whose capital it holds more than 50%, withthe exception of Air Inter. In order to prevent any transfer of aid to Air Inter, aholding company will be set up by 31 December 1994 which will have a majorityshareholding in Air France and Air Inter. No financial transfer which does notform part of normal commercial relationships shall be made between thecompanies in the group, either before or after the actual setting up of the holdingcompany. Accordingly, all transfers of goods and services between the companiesshall be carried out at market prices; in no case may Air France apply preferentialtariffs in favour of Air Inter‘.

Summary of the applicants' arguments

298.
    The applicants submit that, by not including Air Inter in its assessment, theCommission committed an error which rendered the conditions governing theauthorisation of the aid devoid of content. For example, the minimal reduction incapacity required of Air France was, they claim, greatly facilitated by the fact thatAir Inter had unlimited possibilities for increasing its capacity. The Commissionwas wrong to consider that the holding company envisaged would prevent Air Interfrom benefiting from the aid in any way. Air France and Air Inter form a singleeconomic unit and must therefore be considered as a single undertaking for thepurpose of applying the Community rules governing State aid. The change instructure between Air France and Air Inter from a parent-subsidiary relationshipto that of two companies controlled by the same holding company does not alterthis conclusion. At the same time, competition between Air France and Air Interis inconceivable since they have identical economic interests.

299.
    In this context, the applicants in Case T-371/94, citing press articles published inAugust and September 1994, state that the chairman of the holding company wasto be Mr Christian Blanc, who was also to remain chairman of Air France; 14additional directors were to be chosen from among the directors and employees ofAir France and Air Inter. The chairman of Air Inter was also to sit on the boardof the holding company and had, moreover, been appointed chairman of AirFrance's new operating centre for its European activities, the 'Centre de RésultatEurope‘ (European Results Centre). Air Inter was to be merged into Air France's'Centre de Résultat Europe‘ with effect from the end of the restructuring plan,that is to say, from 1 January 1997. In the interim, Air Inter was to begin operatingsome of Air France's European routes in its place. In addition, Air France and AirInter were to hold shares in the same undertakings and had reinforced theircooperation in several areas. The Commission, they claim, had also identified AirInter as a core asset of Air France that could not be sold off.

300.
    Those applicants submit that the fact that Air Inter belonged to the same group asAir France, and its announced merger with Air France, would have enabled AirInter to 'bank‘ on the aid. Thus, Air Inter could reassure the banks that itsfunding would be relatively free of risk and that, following the merger, itsobligations would be honoured by the new company.

301.
    In so far as the Commission, in the contested decision, imposed the condition thatonly normal commercial relationships could take place between the companies inthe group, those applicants submit that this condition could not prevent Air Interfrom benefiting from the contested aid. There are, they argue, many ways in whichtwo companies within the same group, in particular when they have joint operationsand subsidiaries, can exchange products and services under conditions inconsistentwith those prevailing on the market, without any possibility of verification.

302.
    They point out in this context that French tax law, in particular the fiscal conceptof the 'acte anormal de gestion‘ ('abnormal management act‘) relating to chargesthat are deductible from the profits within a group of companies, did not provideany means for verifying that Air Inter would not benefit either directly or indirectlyfrom the aid granted to Air France. Direct transfers and the financial advantagesrepresented by commissions or preferential prices granted by Air France to AirInter, in anticipation of the merger between the two companies, could not beregarded as abnormal management acts.

303.
    The applicants add that the condition imposed was of limited application in so faras it did not cover the transfer by Air France of European routes and valuable slotsto Air Inter.

304.
    So far as the exchange of slots between Air France and Air Inter is concerned,those applicants state that such exchanges are frequent between airlines. Anairport slot is an essential asset in an airline's ability to operate a route. There istherefore a market in which slots are bartered for other slots. There is, however,no 'market price‘. Airlines forming part of the same group of companies mayexchange slots in order to implement a group strategy. The strategy of the AirFrance group was for Air Inter to expand its operations outside France into Europeand beyond pending the merger scheduled for 1 January 1997. Air France couldtherefore very well provide Air Inter with a valuable peak-time slot for theoperation of a particular route. The condition imposed by the Commission, seekingto hold Air France separate from Air Inter, was thus, they claim, ineffective.

305.
    In regard to all routes, Air Inter's ability to receive advance notice from Air Franceconcerning the routes that Air France intended to relinquish provided it with aconsiderable advantage over independent competitors. It could thereby prepareits entry on a given route in time for the public announcement by Air France of itswithdrawal from the route in question. Further, Air Inter's ability to benefit fromthe existing Air France infrastructure at the airports and in the countries concernedconstituted an additional significant advantage over rival airlines wishing to beginoperating such routes.

306.
    Those reasons, the applicants submit, explain how Air France could effectivelytransfer its routes to Air Inter. Their assertion, they argue, is illustrated by pressarticles published in September 1994, which reproduce official announcements byAir France (Annex 33 to the application). The applicants further submit that anagreement dating from 1992 between Air France and Air Inter provided for thetransfer of Air France cockpit crew to Air Inter for all European routes that AirInter was to begin operating. This, they submit, was not the sort of agreement thattwo independent EEA airlines would enter into.

307.
    In order to demonstrate the group strategy being pursued by Air France and AirInter, the applicants refer to the 'ABC World Airways Guide‘ for June 1994, whichlists the timetables of many airlines throughout the world. It lists Air Inter's flights

under an 'AF‘ code. That use of the 'AF‘ code allows a route consisting of adomestic flight provided by Air Inter and an international flight provided by AirFrance to be presented as a seamless flight, thereby receiving priority in thecomputer reservation system.

308.
    The Maersk companies add that the subsequent behaviour of Air France and itsgroup demonstrates a disregard for the commitment to keep Air Inter commerciallyand financially independent. The flight numbers of Air Inter were, for the purposeof coordinating the electronic reservation systems, to adopt the computer code ofAir France; Air Inter was to adopt the name of the future European company ofthe group and offer its simplified product and its low tariffs on numerous Europeanroutes, departing mainly from Orly. In addition, Air Inter's price reductions areexplicable only in the knowledge that in a few years' time all of its losses were tobecome absorbed in Air France's, which in the meantime would have received thebenefit of the aid and would therefore be better placed to bear such losses.

309.
    The interveners also point out that Air France and Air Inter placed in operation,on 2 January 1995, the first aircraft in a new joint regional and feeder service underthe banner 'Air France Air Inter Express‘. As Air France's own documentationstated, this new joint approach expressed a common policy with a view to themerger of the two companies. The fact that a degree of fleet integration hasalready occurred demonstrates not only the Commission's error in concluding thatAir Inter would not be a recipient of the aid, but also the inadequacies of themeasures designed to prevent any spill-over of the aid.

310.
    Further, airline companies undergoing restructuring will normally introduce cost-cutting programmes throughout their group to contribute to loss reduction. AirFrance, because of the contested aid, would have been able to avoid requiring sucha contribution from Air Inter. Air Inter was thus able to finance the currentexpansion of its operations where, but for the aid, it would have had to implementausterity measures. It was thus at least an indirect beneficiary of the aid inquestion.

311.
    At the hearing, the applicants in Case T-371/94 pointed out that, according tocondition No 1, the contested aid was intended for Air France and for anycompany of whose capital Air France held more than 50%. Those companies arethus deemed to benefit from the aid. However, none of them needed to berestructured or, if they did require restructuring, they did not submit anyrestructuring plan. Authorisation of the aid in favour of Air France and its 80subsidiaries was therefore manifestly unlawful, particularly with regard to thosesubsidiaries operating within sectors unconnected with air transport.

312.
    The Commission, the French Republic and Air France contend that the argumentsput forward are unfounded.

Findings of the Court

313.
    With regard to the arguments that condition of authorisation No 1 was inherentlyinappropriate on the ground that the failure to bring Air Inter within the scope ofthe contested decision ignored economic realities, in particular the economic unityof Air France and Air Inter, it should be pointed out that the contested aid had thetwofold purpose of contributing both to the settlement of Air France's debts andto the financing of its restructuring plan, expiring on 31 December 1996. Inauthorising the aid, the Commission was thus required to ensure that theattainment of those objectives would not be compromised by the relations betweenCompagnie Nationale Air France and Air Inter within the Air France group, inparticular through the direct or indirect transfer of part of the aid to Air Inter. Furthermore, as has been stated above (paragraphs 214 to 216), the Commissionwas obliged to take account of the fact that Air Inter was an asset of strategicimportance for Air France, with the result that the two companies could not berequired to effect a total and definitive separation.

314.
    In those circumstances, the Court considers that, in the exercise of its broaddiscretion, the Commission was entitled to form the view that, once the mechanismof the holding company had been established, Air France and Air Inter would betwo independent companies, both legally and financially, for the purpose ofapplying the specific rules governing State aid. That mechanism — in conjunctionwith the system of verification by independent consultants and the scheduling ofpayment of the aid in three tranches under Article 2 of the contested decision —could be treated as an adequate and appropriate means by which to guarantee thatAir France would be the sole beneficiary of the aid and to transform the legalstructure of Air France and Air Inter, which passed from the dependency structureof subsidiary and parent company to that of independent sister companies.

315.
    The separate legal and financial status of the two companies, for the purposes ofthe rules governing State aid, is not brought into question by the fact that they havesubsidiaries and management staff in common, nor by their coinciding air-transportinterests. Those are purely factual matters which could at most have led theCommission and the independent consultants to be particularly vigilant in theirverification, under Article 2 of the contested decision, of the proper implementationof the restructuring plan and of the fulfilment of the conditions laid down forapproval of the aid.

316.
    The same applies with regard to the merger of the two companies scheduled for1 January 1997. Irrespective of the fact that the Commission did not, in July 1994,have any specific and detailed plan of such a merger, of which it could have takenaccount in the contested decision, the possibility of joining the Air France groupat the end of the restructuring period was not at all confined to Air Inter. In thatregard, Air Inter was indistinguishable from any other airline company independentof Air France for the purposes of the rules governing State aid. Furthermore, itis clear that Air France, in the same way as any other undertaking in receipt of

State aid, had to be able to regain its operating freedom once the restructuringphase, with the concomitant restrictions imposed by the Commission, had beencompleted.

317.
    While it is true that the actual statement of reasons given in the contested decisiondoes not deal with the de facto interdependence between Air France and Air Interor the prospects of a possible merger between the two companies, the Courtnevertheless takes the view that the reference to the holding company, the effectof which was to guarantee their legal independence vis-à-vis each other, made anyfurther reasoning in that regard superfluous. Within the general structure of thedecision, Air Inter is an autonomous company, excluded from benefiting from theaid. It must therefore be treated, as long as that autonomy lasts, in the same wayas any other airline company not in receipt of the aid and independent of AirFrance.

318.
    So far as the exchange of routes and slots between Air France and Air Inter isconcerned, it must be noted that such operations do not constitute a special featureof the relationship between those two companies. Rather, they are commonpractices in which all airline companies engage. Thus, as the French Governmentstated during the hearing without being challenged, in 1996, at Paris (CDG)Airport, Air France exchanged 50 slots with some 30 companies outside the AirFrance group, including two with British Airways, one with British Midland and onewith KLM. No exchanges were made with Air Inter during the 1994/95 winterseason; only one was made during the 1995 summer season, and four during the1995/96 winter season. With regard to route exchanges, the French Governmentpointed out that the Paris-Dresden route was taken over by Lufthansa after AirFrance had abandoned it, while Jersey Air European took over the Paris-Glasgowroute and Crossair the route between Bordeaux and Geneva.

319.
    In that context, it should be added that the possible transfer by Air France to AirInter of profitable routes and slots in exchange for non-profitable routes and slotswould have run counter to the restructuring as conceived by Air France itself in itsPlan and would have jeopardised achievement of the operating and productivityobjectives posited in the contested decision. The Commission was thereforeentitled to form the view that the control mechanism introduced by Article 2 of thecontested decision was adequate to cope with that unlikely scenario.

320.
    Regarding the argument that Air Inter was at least an indirect beneficiary of theaid, without which Air France would have had to call on Air Inter to contributefinancially to its restructuring, it is important to bear in mind that the Commissionwas entitled to consider as justified, in the exercise of its broad discretion, themaintenance of the restructured Air France company at the level of the other twomajor European airline companies (see paragraph 209 above) and that Air Interrepresented an important strategic, and hence non-disposable, asset of Air France(see paragraphs 214 to 216 above). Consequently, the Commission was entitled to

take the view that Air France's position would be weakened if, instead ofauthorisation of the aid in conjunction with the establishment of the holdingcompany described above, Air Inter had been required to mobilise its own capitalor incur debts itself in order to contribute to the financing of Air France'srestructuring. In those circumstances, Air Inter cannot be described as an indirectbeneficiary of the aid.

321.
    The arguments based on the ineffectiveness of control of the implementation ofcondition of authorisation No 1 or on the possibility of its circumvention by AirFrance are not such as to affect the actual legality of the contested decision sincethey relate only to the phase after that decision was adopted or even after theperiod of Air France's restructuring (see paragraph 292 above). For the samereason, all the references by the applicants and the interveners supporting them tothe conduct of Air France and/or Air Inter after the contested decision had beenadopted must be discounted (see paragraph 81 above).

322.
    As for the problems of control raised with regard to French tax law, suffice it tostate that, far from being restricted to the concepts of such law, the independentconsultants — on whom Article 2 of the contested decision imposed the task ofverifying the proper implementation of the restructuring plan and fulfilment of theconditions laid down for approval of the aid — were free to monitor the soundnessof the legal and financial separation between Air France and Air Inter inaccordance with the economic, financial and accounting methods which theyconsidered to be appropriate. Implementation of the 1992 agreement providing forthe transfer of cockpit crew from Air France to Air Inter, during the period ofvalidity of the conditions of authorisation imposed by the contested decision, wouldobviously have to comply with those conditions, in particular condition No 1, underwhich all provisions of services between Air France and Air Inter had to be carriedout at market prices, the monitoring of compliance with that condition falling withinthe phase subsequent to the contested decision.

323.
    Finally, in so far as it has been argued that condition of authorisation No 1 allowedaid to be paid to subsidiaries of Air France that were not under any obligation torestructure, suffice it to point out that condition of authorisation No 6 required thatthe aid be used exclusively by Air France 'for the purposes of restructuring thecompany‘, which prohibited subsidiaries not subject to restructuring from benefitingfrom it. As for Air Charter, which was, moreover, the subject of conditions ofauthorisation Nos 12 and 13, it should be noted that Air France's charter sectorwas covered by the contested restructuring plan (p. 22 of the Plan). The Courttakes the view that, in the exercise of its broad discretion, the Commission wasentitled to confine itself to that general rule, reinforced by the control mechanismin Article 2 of the contested decision, and to consider that only those essentialmatters which concerned Air France itself, Air Inter and Air Charter required moredetailed rules.

324.
    It follows that the arguments directed against condition of authorisation No 1 mustbe rejected.

(b) Condition of authorisation No 3

325.
    This condition required the French authorities to ensure that 'Air France shallcontinue the process of implementing in full the Plan as communicated to theCommission on 18 March 1994, in particular as regards the following productivitytargets expressed by the indicator equivalent revenue passenger kilometre/employeefor the duration of the restructuring plan:

—    1994: 1 556 200 equivalent revenue passenger kilometre/employee,

—    1995: 1 725 500 equivalent revenue passenger kilometre/employee,

—    1996: 1 829 200 equivalent revenue passenger kilometre/employee‘.

326.
    It should be added that the Commission specified that the ERPK efficiencyindicator represents revenue passenger kilometres and revenue tonne kilometres(converted to be comparable with passenger revenue yield, on the basis of onetonne kilometre being equivalent to 3.5 passenger kilometres) per employee. Thatindicator represents the total level of demand for an airline's services in terms ofboth passengers and cargo (contested decision, OJ, p. 83).

Summary of the applicants' arguments

327.
    The applicants take the view that the ERPK is a flawed unit of measurement. Dueto the diversity in the nature of carriers' operations, it is very difficult to arrive ata single composite measure which can take account of all operational differencesin a meaningful way. Ideally, therefore, a wide range of indicators should be usedto measure performance in discrete areas of the airline business. The Commission,they argue, violated this elementary rule by assessing Air France's current andexpected productivity on the basis of only one unit of measurement, namely theERPK, which, to the applicants' knowledge, has never been used in the airtransport sector.

328.
    The applicants state that they normally measure productivity on the basis of'revenue tonne kilometres‘ ('RTK‘) or 'revenue passenger kilometres‘ ('RPK‘)per employee, without combining the two units. A unit of measure such as theERPK, combining passenger kilometres and tonne kilometres, would, they argue,double the importance of passengers. It is, moreover, a unit of measurement whichcombines entirely different services, namely the carriage of freight and the carriageof passengers. The higher the percentage of freight carried, the lower the unit

costs, particularly when an airline operates all-cargo aircraft. This contributes tomaking an airline carrying cargo appear extremely efficient in comparison with anairline carrying passengers.

329.
    Furthermore, since the ERPK simply multiplies the number of passengers carried(including cargo converted into a number of passengers) by the number ofkilometres flown, a simple way to boost an ERPK figure is to operate long-haulroutes, thus providing an increased number of kilometres. According to theapplicants, available statistics suggest that this is precisely what Air France iscurrently doing on transatlantic routes: it is boosting capacity, regardless of the factthat all other airlines are cutting theirs. Moreover, this unit of measurement saysnothing of the profitability of an airline's activities because the multiplication of thenumber of passengers by the number of kilometres flown does not provide anyindication of the resulting revenue and the cost of transporting the passengers. Asa result, Air France could provide satisfactory results from the point of view ofpassengers multiplied by kilometres flown but disastrous yields.

330.
    Finally, even if the ERPK were a relevant unit of measurement, a number offactors place its reliability in question. First, in its communication of 3 June 1994,the Commission referred to Air France's productivity only in terms of 'availableseat kilometres‘ ('ASK‘). Subsequently, in Decision 94/662 (cited above inparagraph 145), the Commission measured Air France's productivity solely in termsof number of personnel per aircraft, passengers carried per employee, ASK peremployee and RPK per employee. There is, finally, no consensus on whatconstitutes a 'correct‘ ratio between the yield of cargo and passenger operations.

331.
    The applicants also point out that Air France's productivity figures do not takeaccount of services provided by personnel 'wet-leased‘ to Air France (that is tosay, where Air France takes a lease of an aircraft and its crew) or subcontractedpersonnel. Productivity measured 'per employee‘ is, they argue, artificially inflatedif persons not included among Air France's employees actually contribute to itsproductivity. Air France is currently wet-leasing aircraft and personnel from severalcompanies. The ERPK per employee thresholds for payment of the three tranchesof aid could well be satisfied merely through increased reliance on wet-leases orsubcontracting arrangements, since the commitments imposed by the Commissiondo not cover such an eventuality. In this context, the applicants state that AirFrance wet-leased from TAT aircraft and complete crews, not just cockpit crews. Air France, they continue, has also wet-leased aircraft and crew from Air Littoraland Brit'Air and continues to do so.

332.
    The applicants argue, finally, that the productivity targets set by condition No 3were too low compared to those already achieved by other airlines. In this context,they criticise the Commission for having merely compared Air France's productivitywith that which seven other European airline companies were expected to achievein 1996 (contested decision, OJ, p. 83). Those airlines include Alitalia and Iberia,which are experiencing serious difficulties and whose future is uncertain. The

Commission also included among the seven two airline companies, SAS andSwissair, which fly, on average, much shorter routes than Air France and whoseproductivity thus appears unusually low. Only a comparison with companies havingactivities and flying distances similar to those of Air France would, they argue, beappropriate. To measure Air France's efficiency within the air transport sector, itwould have been more meaningful to compare its expected productivity with thatof 'healthy‘ airlines such as KLM, British Airways, SAS and Lufthansa. In anyevent, such a comparison was necessarily approximate since the Commission couldnot have had a precise idea of the continuing restructuring undertaken by thegroup of companies in question.

333.
    The Commission, the French Republic and Air France contend that the argumentsput forward are unfounded.

Findings of the Court

334.
    Condition No 3 was not confined to requiring that productivity targets expressedin ERPK be achieved, but required the French authorities to ensure that AirFrance would pursue full implementation of its restructuring plan, the objectivesin terms of ERPK being indicated only by way of specific example. Likewise, underArticle 2 of the contested decision, payment of the second and third tranches of theaid was subject to, inter alia, actual implementation of the Plan for the undertakingand achievement of the planned results '(particularly as regards the profits andcost-effectiveness ratio as expressed in equivalent revenue passengerkilometre/employee ...)‘. It follows that the improvement in Air France's overallproductivity was not to be measured exclusively in terms of ERPK but also fell tobe assessed in the light of other productivity improvement objectives referred to inthe restructuring plan, in particular those concerning reductions in staff andinvestments, procurement savings, improvements in the use of working time and asalary freeze.

335.
    Once the significance of the ERPK/employee unit has thus been reduced to itsproper dimensions, it must be seen as an indicator of physical productivity whichcounts both passengers and freight transported, taking account — through the useof the conversion coefficient 3.5 — of the economic reality under which thetransport costs of one tonne of freight and staff requirements for that purpose arewell below those of passenger transport, the situation being reversed with regardto the receipts from those two forms of transport. Far from doubling theimportance of passengers, this unit of measurement thus makes it possible toascertain whether a company is transporting more passengers and freight thanpreviously, with the same number of employees, over distances which are globallythe same or whether it is transporting the same number and quantity thereof withfewer employees, thus improving its physical productivity.

336.
    Admittedly, as the Commission itself has acknowledged before the Court, ERPKis not an infallible criterion in all circumstances. Thus, it is possible that theconversion coefficient of 3.5 may have varied during the period of Air France'srestructuring. However, it is also true that ERPK is particularly appropriate formeasuring the productivity of a company such as Air France, for which air freightrepresents a fundamental constituent element of its air transport activities,amounting to up to 40% of its total cabin load. In addition, it is the unit ofmeasurement which Air France has traditionally used since 1978. In thosecircumstances, the Commission was justified in including ERPK among the otherfactors relevant to the company's productivity for the purpose of measuring theimprovement in Air France's productivity.

337.
    This conclusion is not invalidated by any of the points raised by the applicants orthe interveners supporting them.

338.
    With regard to the charge of inconsistency laid against the Commission in that theERPK indicator does not feature in Decision 94/662 (cited above in paragraph145), which was adopted on the same day as the decision here, it need merely benoted that Decision 94/662, unlike that here under challenge, concluded that theaid granted to Air France at an earlier period was incompatible within the meaningof Article 92(1) of the Treaty and refused to apply Article 92(3) in the absence ofa proper restructuring plan on Air France's part. In those circumstances, there wasno question, in that decision, of laying down productivity targets expressed in ERPKto be achieved by Air France.

339.
    Regarding the possibility that the ERPK figure might be artificially inflated simplyby increasing the kilometres flown, the Commission has rightly pointed out that itwould appear illogical for Air France, simply in order to cover more kilometres, tofly aircraft with an insufficient cabin load and thus, under the monitoring of theCommission and the independent consultants pursuant to Article 2 of the contesteddecision, compromise the overall success of its restructuring plan. Furthermore, theindicators used by the applicant companies for measuring their own productivity,namely RTK and RPK, are open to the same risk of manipulation inasmuch astheir multiplier is also the number of kilometres flown.

340.
    The same applies with regard to the argument concerning wet-leasing. While it istrue that recourse to wet-leasing does make it possible to improve theERPK/employee ratio in so far as the aircraft concerned help to increase ERPKwithout their crews being counted in the denominator of the ratio, such distortionwill exist irrespective of the unit of measurement employed if it relates to thenumber of employees (ASK, RTK, RPK), and is thus not specific to ERPK. Moreover, wet-leasing is a current practice within the air transport sector, and AirFrance's situation does not therefore differ fundamentally in that regard from thatof other European carriers. Finally, if Air France had in fact had recourse tonumerous wet-leases, it would, while under the supervision of the Commission andthe independent consultants, have been compromising the implementation of its

own restructuring plan, which specifically envisaged a reduction in staff, betterutilisation of its fleet and crews and a lowering of costs. The Commission wastherefore justified in omitting to take account of wet-leases in this connection.

341.
    So far as concerns the argument directed against the choice of the seven airlinecompanies selected for the purposes of a productivity comparison with Air France,the Court takes the view that the Commission was entitled to base its comparisonon a relatively large number of companies in order to achieve, in so far as possible,a true and representative average for the sector. In so doing, it was not obliged tochoose only those companies that were most efficient or specialised in long-haultransport, but could also include in its comparison other companies such as Alitalia,Iberia, SAS and Swissair by forming the view that such an approach took accountof the complexity of air transport as a whole. Consequently, no manifest error ofassessment has been established in the choice of seven airline companies.

342.
    Finally, the same applies with regard to the contention that the productivity targetsset by condition No 3 were too weak. This is no more than a bare assertion,unsupported by any concrete factors capable of establishing that the Commissioncommitted a manifest error in this regard. In those circumstances, the Commissionwas entitled to confine itself to contradicting that assertion by stating that, in itsopinion, the productivity targets were reasonable, adequate and achievable.

343.
    It follows that the arguments directed against condition of authorisation No 3cannot be upheld.

(c) Condition of authorisation No 6

344.
    This condition required the French authorities to ensure that 'for the duration ofthe Plan, the aid is used exclusively by Air France for the purposes of restructuringthe company and not to acquire new holdings in other air carriers‘.

Summary of the applicants' arguments

345.
    In the view of the applicants, this condition was inherently defective, since the aidwould have been used principally to sustain Air France's operations. The scope ofthe condition was also limited by the interpretation given to it by Air France. Inits view, the ban on acquiring shareholdings in other airlines did not apply to payingfor acquisitions agreed upon before the contested decision was adopted or toincreasing existing shareholdings in other airlines, such as Sabena. Moreover, therequirement under Article 92(3)(c) of the Treaty that State aid be used solely forthe restructuring of its beneficiary implies, of itself, that the beneficiary beprevented from acquiring shares in airlines. The acquisition of shares in otherairlines could not possibly be considered to constitute a restructuring measure.

346.
    The Commission contends that those arguments are unfounded.

Findings of the Court

347.
    As the Commission has stressed before the Court, the wording of this conditionprohibited use of the aid both in order to acquire new holdings and in order toincrease existing holdings. Concerning the argument relating to unlawful financingboth of operational activities and of the final instalment of the purchase price forthe holding in the share capital of Sabena, suffice it to recall that the argumentsput forward in this regard have already been rejected (see paragraphs 137 to 141and 223 above).

348.
    With regard, finally, to the allegedly redundant nature of condition No 6, even onthe assumption that the prohibition of using aid to acquire holdings already featuresin Article 92(3)(c) of the Treaty, the usefulness of such a condition consists inenabling the Commission to refer the matter directly to the Court of Justice underthe second subparagraph of Article 93(2) without first being required to initiate theprocedure under the first subparagraph of Article 93(2) or under Article 169 (seeparagraph 11 of British Aerospace and Rover v Commission, cited above inparagraph 290). Moreover, condition No 6 was not limited to prohibiting theacquisition of holdings, but further required that the aid be used exclusively for thepurposes of restructuring Air France.

349.
    It follows that the arguments directed against condition of authorisation No 6 mustbe rejected.

(d) Condition of authorisation No 7

350.
    This condition required the French authorities to ensure that 'during the periodcovered by the Plan, Compagnie Nationale Air France does not increase thenumber of aircraft in its operating fleet beyond 146‘.

Summary of the applicants' arguments

351.
    In the applicants' submission, the Commission was wrong to consider that thiscondition would be effective. It did not cover wet-leasing operations, through whichAir France could increase the number of aircraft effectively at its disposal. TheCommission also failed to take account of the fact that Air France could continueordering new aircraft and expanding its fleet through Air Inter, not only becauseAir Inter's presence in the Air France group meant that there was a significantcommonality of economic interests between the two companies but also becauseof their merger scheduled for early 1997. All the new aircraft ordered and receivedby Air Inter would therefore revert to Air France in 1997. Furthermore, there was

nothing to stop Air France funding the acquisition of aircraft for Air Inter. Thestrategy of the Air France group, they argue, was to make Air Inter a Europeancarrier. In this connection, the operation of specific routes which Air France hadpreviously operated was being transferred to Air Inter. Such a mechanism was, ineffect, tantamount to Air France's being able to increase its operational fleetbeyond 146 by relying also on the fleet of its sister company, which remainedunfettered by any commitments.

352.
    The Commission contends that those arguments are unfounded.

Findings of the Court

353.
    With regard to the possibility of recourse to wet-leases, condition No 7 also applied,as the Commission has stated before the Court, to aircraft leased with their crews. By imposing a limit on the number of aircraft in Air France's 'operating‘ fleet, thiscondition was directed not only at Air France's own aircraft but also at those whichany other company might have made available to it for the purpose of operatingthem. In addition, it must be read in conjunction with Air France's restructuringplan, which, under the control of the Commission and the independent consultantspursuant to Article 2 of the contested decision, provided for the number of seatsoffered to be slightly reduced in comparison with 1993 (contested decision, OJ,p. 75).

354.
    So far as the references to Air Inter are concerned, suffice it to recall that, for theduration of Air France's restructuring, Air Inter had to be regarded as anindependent company, that the commercial relations between the two companieswere governed by condition of authorisation No 1, that any potential circumvention,by means of Air Inter, of the conditions imposed on Air France, whilst it might leadthe Commission to seek recovery of the aid disbursed, is irrelevant to the legalityof the contested decision, and that its possible merger with Air France concernedAir Inter in the same way as it would any other airline company independent of AirFrance (see paragraphs 292 and 313 to 315 above).

355.
    The arguments directed against condition of authorisation No 7 must accordinglybe rejected.

(e) Condition of authorisation No 8

356.
    This condition required the French authorities not to 'increase, during the periodcovered by the Plan, the supply of Compagnie Nationale Air France beyond thelevel reached in 1993 for the ... routes ... between Paris and all destinations in theEuropean Economic Area (7 045 million available seat kilometre) [and] betweenprovincial airports and all destinations in the European Economic Area (1 413.4

million available seat kilometre). The supply could be increased by 2.7% eachyear, unless the growth rate of each of the corresponding markets is lower. However, if the annual growth rate of these markets exceeds 5%, supply could beincreased beyond 2.7% by the amount of increase above 5%‘.

Summary of the applicants' arguments

357.
    The applicant in Case T-394/94 claims that the Commission committed a manifesterror of appreciation in concluding, in the contested decision, that the Europeanair transport sector was not suffering from a structural overcapacity crisis. In sodoing, the Commission apparently took no account of the fact that there was andis overcapacity, even though this was expressly confirmed by the 'Comité desSages‘ in its report on the European civil aviation industry drawn up in January1994 at the request of the Commission itself. In particular, the 'Comité des Sages‘considered that overcapacity was due in part to the State aid which had beengranted. The Commission's argument that overcapacity was merely a 'temporaryphenomenon‘ is thus contradicted by the Commission's own sources.

358.
    The applicants take the view that, in a sector suffering from overcapacity, thecompensation for State aid must be a reduction in the beneficiary's capacity, evenif the market is growing. Such an obligation remains even if the overcapacity isonly a temporary phenomenon. The applicants in Case T-371/94 consider that thenotion of 'compensatory justification‘ is central to many Commission decisions,including those relating to State aid granted to car manufacturers dating from the1980s, at a time when the car market was suffering from overcapacity but growingsignificantly (see, inter alia, Commission Decision 89/661/EEC of 31 May 1989concerning aid provided by the Italian Government to Alfa Romeo, OJ 1989 L 394,p. 9). They add that the compensatory justification cannot be avoided simplybecause the market is growing, since one can never exclude the risk of a re-emergence of overcapacity. The Kingdom of Denmark expresses the view that acomparison with the Sabena, TAP, Aer Lingus and Olympic Airways decisions(cited above in paragraphs 55 and 174) makes it clear that these other cases allinvolved reductions in capacity imposed on the recipients of State aid.

359.
    The Commission, the applicants argue, was also wrong in stating — on the basis ofstatistics produced by IATA forecasting a 6% annual traffic increase — that theovercapacity in the air-transport sector might disappear by 1995. The statistics ofIATA are unreliable and its forecasts frequently wrong. Moreover, traffic growthcannot be considered in isolation from the factors that cause it. In the air transportmarket, the current growth in traffic has been achieved largely by lowering pricesand thus lowering yield below the level necessary for the survival of numerousairlines.

360.
    The applicants submit that Air France was able to use Air Inter to expand itscapacity and market share without restrictions until their merger in 1997. They

point out in this regard that, if it was unlikely that Air France would operate moredomestic routes, this was a result of its strategic plan, which allocated the domesticnetwork and certain European routes to Air Inter.

361.
    The applicants point out that the capacity limitations applied only to routesbetween France and non-French destinations within the EEA. With the exceptionof the Paris (CDG)-Nice route, Air France currently operates within the EEA onlyroutes between France and other EEA countries. Since the entry into force ofCouncil Regulation No 2408/92 of 23 July 1992 on access for Community aircarriers to intra-Community air routes (OJ 1992 L 240, p. 8), EEA air carriers havebeen free to operate on any route between two EEA Member States and toprovide limited cabotage services within any Member State other than their own. As a result, they claim, Air France was completely unrestrained in regard to thecapacity which it could offer on routes between two EEA Member States otherthan France and on domestic routes within an EEA Member State other thanFrance.

362.
    It appears to the applicants that condition No 8 was not intended to cover capacityoffered by Air France wholly within France. The capacity limitations, moreover,were of little significance because 1993 — the reference year — was a peak in AirFrance's supply of capacity. Further, the condition applied only to passengertraffic. The Commission failed to explain why there was no limitation on AirFrance's capacity in connection with cargo traffic. Finally, the commitmentconcerning increases in capacity would not have prevented Air France from relyingon wet leases to increase its capacity.

363.
    The applicants also claim that the Commission made a manifest error ofassessment in linking the limitation on Air France's capacity to a decrease in itsmarket share within the EEA. The Commission declared in the contested decisionthat, by limiting Air France's supply below market growth, 'its market within theEuropean Economic Area‘ would decrease to the benefit of its competitors(contested decision, OJ, p. 87) . According to the applicants, even in a situationwhere the maximum 2.3% (that is to say, 5% minus 2.7%) limitation on AirFrance's rate of increase in capacity applied, it was in a position to maintain itsmarket share by little more than a 1% increase in its load factor. The UnitedKingdom also alleges the same manifest error of assessment, adding that it wouldfollow from a 3.8% increase in the load factor (contested decision, OJ, p. 87) andan authorised increase of 2.7% in capacity that the number of Air France'spassengers would be expected to grow by 6.6% (that is to say, 1.038 x 1.027 =1.066), a figure in excess of the 5.5% projected annual market growth (contesteddecision, OJ, p. 77).

364.
    The Commission, the French Republic and Air France contend that thosearguments are unfounded.

Findings of the Court

365.
    In stating, in the contested decision, that the European civil aviation sector was notaffected by structural overcapacity, in so far as existing overcapacity was likely tobe only a temporary phenomenon, the Commission relied essentially on IATAstatistics dating from 1993 and forecasting an annual increase in air traffic of 6%(contested decision, OJ, p. 82). IATA is an international body of world repute towhich almost all airline companies belong and which regularly publishes trafficforecasts respected in the profession. The Commission was therefore entitled,without committing any manifest error, to rely on the figures published by that bodyin drawing its conclusion that there was no structural overcapacity.

366.
    That analysis is not contradicted by the report of the 'Comité des Sages‘, which,while it recommended in general terms that a reduction in capacity should beconsidered, did not express any views on whether the existing overcapacity wasstructural or temporary (Annex 13 to the application in Case T-394/94, pp. 18 and22). Furthermore, as Air France pointed out before the Court, without beingchallenged, developments in air transport have confirmed the Commission'sanalysis, since overcapacity has been reabsorbed in the interim.

367.
    That being so, the finding that there was no structural overcapacity entitled theCommission to conclude that the state of the aviation industry did not requiregeneral capacity cut-backs (contested decision, OJ, p. 82). It necessarily followsthat the Commission did not commit any manifest error of assessment by notimposing a reduction in the capacity of Air France or Air Charter. On this view,therefore, the Commission was not under an obligation to analyse, in regard tocapacity, the air routes on which Air France and its subsidiaries were incompetition with other European carriers, but could properly confine itself toimposing limitations on Air France's expansion, in so far as those limitations didnot compromise the company's prospects of regaining its financial viability andcompetitiveness. Those considerations also apply to the freight sector, which, ashas been confirmed above (paragraph 336), is a significant activity for Air France.

368.
    Having regard to Air France's special position as one of the three major Europeanairline companies, the reference to capacity reductions made by other companiesof much more modest dimensions, such as Aer Lingus, TAP, Sabena or OlympicAirways, is irrelevant. The same holds true for the reference to the motor vehiclemarket in the 1980s, no evidence having been adduced to establish the specificrelevance of that market to the analysis of the civil aviation sector for the years1992 to 1994 and its medium-term prospects (1994 to 1997). As for the risk thatAir Inter might be used to increase Air France's capacity, suffice it to recall thatthe two companies were to be regarded as mutually independent for the durationof Air France's restructuring. In regard, finally, to wet leases, the Commission hasstated before the Court that any flight by an aircraft leased with its crew would betaken into account as an Air France flight for the purposes of condition No 8. Theapplicants noted that statement but did not challenge it.

369.
    Regarding the claim that condition No 8 was too restricted, it must beacknowledged that it covered only routes between France and other EEA countriesand thus did not limit Air France's supply on routes between two EEA countriesother than France, on routes within an EEA country other than France, or ondomestic French routes. By confining itself to the France-EEA network, however,the Commission did not exceed the bounds of its broad discretion.

370.
    The Commission was entitled to leave the domestic French market out of accounton the ground that Air France operated only one domestic route, since the Frenchdomestic carrier was then — and for the medium-term future — Air Inter and theexclusion of French domestic routes could thus have had no more than a negligibleeconomic impact. The same applies with regard to the routes within any EEAcountry other than France, since — under Article 3(2) of Regulation No 2408/92 andPoint 64.A, Chapter VI, of Annex XIII to the EEA Agreement (Transport — Listprovided for in Article 47) (OJ 1994 L 1, p. 422), as amended by Decision No 7/94of the EEA Joint Committee amending Protocol 47 and certain Annexes to theEEA Agreement (OJ 1994 L 160, p. 1, at p. 87) — the EEA Member States werenot required to authorise the exercise of cabotage rights prior to the end of AirFrance's restructuring period. Consequently, operation of such routes could beregarded as exceptional and economically insignificant. That consideration isequally relevant to the operation of routes between two EEA countries other thanFrance, since the Commission was justified in discounting the economic significanceof such an activity without any link with Air France's hub in Paris.

371.
    So far as concerns the claim that there was a failure to appreciate the effects thata limitation on Air France's capacity would have on the development of its marketshare, it must be acknowledged that the phrase featuring in the contested decision,to the effect that '[b]y limiting Air France's supply even below market growth itsmarket within the European Economic Area will decrease, to the benefit of itscompetitors‘ (contested decision, OJ, p. 87), may appear mistaken in so far as themarket share of an undertaking depends not on the volume of its capacity but onits degree of utilisation. It should, however, be borne in mind that Air France'ssupply — that is to say, capacity — was expressed in condition No 8 in terms of thenumber of seats available. By specifying that its supply was to be limited to withinthe forecast market growth, the Commission thus sought to restrict only AirFrance's prospects of sharing in that growth — in other words, its potential marketshare defined by the number of seats available. The Commission has explicitlystated before the Court that the limitations on supply imposed on Air France werein no way intended to prevent achievement of its restructuring plan, whichenvisaged an increase in productivity, it being possible for both productivity andeffective market share to increase due to an improvement in the load factor. Returned to the context of the objectives served by Air France's restructuring, thecontested phrase does not, therefore, express any manifest error on theCommission's part.

372.
    Finally, as regards the claim that the Commission allowed Air France theopportunity to exceed the forecast traffic growth of 5.5%, suffice it to note that theCommission has stated, without any challenge on this point, that the forecastincrease of 3.8% in Air France's load factor related to the three-year restructuringperiod and was not an annual rate, this latter rate amounting approximately to1.2%. Applying the method of calculation proposed by the United Kingdom, thenumber of Air France's passengers ought, consequently, to have increased by 3.9%(1.012 x 1.027 = 1.039), a figure below the forecast annual growth of 5%.

373.
    It follows that the arguments directed against condition of authorisation No 8 mustbe rejected.

(f) Condition of authorisation No 9

374.
    Under this condition, the French authorities were required to 'ensure that AirFrance does not, during the period covered by the Plan, apply tariffs below thoseof its competitors for an equivalent supply on the routes that it operates within theEuropean Economic Area‘.

Summary of the applicants' arguments

375.
    The applicants consider that the limitation imposed on Air France's pricingfreedom was ineffective. The wording of the condition suggests that it applied onlyto Air France's existing routes, that is to say, those which it was operating at thetime from Paris and the French regions to other destinations within the EEA, andvice versa. They submit that Air France was offering a panoply of promotionalfares. In view of the fact that those fares already existed at the time of thecontested decision, it is arguable that they were not covered by the condition. Since the contested decision, Air France has continued to offer similar promotions. In any case, airlines control their average fares not so much by increasing ordecreasing fare levels as by controlling access by passengers to the different farecategories. Air France could thus undercut prices by allocating more seats to suchpromotional fares. Furthermore, the applicants submit, it is in many casesimpossible for a third party to know what tariffs are charged by a competitor asthey are secret. The products offered by carriers on the same route are also sovaried and so difficult to compare with one another that it will be very difficult inmost cases to establish that a given tariff is lower than another.

376.
    Air France, the applicants further argue, was not prevented from exertingdownward pressure on prices by flooding a specific route with excess capacity,provided that it decreased its capacity on other routes. Finally, the condition underconsideration did not cover Air France's pricing of products or services in other airtransport-related areas, such as aircraft maintenance. Nor is it clear whether the

expression 'on the routes that it operates within the European Economic Area‘covered the provision of charter services by Air Charter.

377.
    The Maersk companies add that, because of the imprecision of condition No 9, AirFrance was able to use the aid to introduce and subsidise the operation of morecostly levels of service offered under the guise of an 'equivalent offer‘. The recentannouncement by Air France of a FF 500 million revamp of its long-haul servicewas a case in point. As a consequence, competitors who do not have the benefitof State aid must respond either by introducing higher levels of service or byreducing prices. The Kingdom of Sweden also points to the very broad scope ofthe terms 'price leadership‘ and 'equivalent offer‘, which give rise to legaluncertainty. Those terms, it argues, are not apt to thwart Air France's increasingthe availability of discount prices in connection with the increases in capacity onspecific routes.

378.
    The Commission contends that those arguments are unfounded.

Findings of the Court

379.
    In the first place, nothing in the wording of condition No 9 justifies theinterpretation that it applied only to the routes served by Air France at the timewhen the contested decision was adopted. Rather, it follows from that wording thatthe prohibition of price leadership applied to all of the routes operated by AirFrance 'during the period covered by the Plan‘, which also covered new routesopened after the contested decision had been adopted.

380.
    Next, it must be noted that, by virtue of condition of authorisation No 1, AirCharter, as a company in which Air France held more than 50% of the capital, wasalso covered by condition No 9.

381.
    As for the alleged opportunities for Air France to dilute the conditions governingaccess to promotional prices and to flood certain routes with excess capacity, theCourt takes the view that the Commission was entitled to regard those possibilitiesas unrealistic, given that Air France was obliged, under the supervision of theCommission and the independent consultants pursuant to Article 2 of the contesteddecision, to implement fully its restructuring plan, which provided, inter alia, forimprovements in productivity.

382.
    The other arguments put forward are confined merely to allegations that conditionNo 9 could not be applied effectively and cannot therefore be considered in thepresent context (see paragraph 292 above).

383.
    Consequently, the arguments directed against condition of authorisation No 9 mustbe rejected.

(g) Condition of authorisation No 10

384.
    This condition required the French authorities not to 'grant preferential treatmentto Air France in the matter of traffic rights‘.

Summary of the applicants' arguments

385.
    The applicants take the view that the Commission was wrong to consider that thiscondition would be effective. Since the entry into force of Regulation No 2408/92on 1 January 1993, the granting of traffic rights has become irrelevant in regard tointernational routes within the Community and, since 1 July 1994, within the EEA. Those rights are enjoyed automatically by EEA airlines. The applicants also accusethe French authorities of misapplying Regulation No 2408/92 and protecting theinterests of Air France and Air Inter.

386.
    They submit that the condition in fact applied only to the operation of domesticroutes. Even there, it was largely irrelevant because Air France operated only onedomestic route and non-French EEA airlines did not have to obtain traffic rightsin respect of the French domestic market. In any event, until 1 April 1997 thoseairline companies had only limited access to that market. In addition, on most ofthe lucrative routes Air Inter's rights were protected by the French authorities onthe basis of Article 5 of Regulation No 2408/92, under which exclusive concessionson domestic routes could continue temporarily.

387.
    They contend that, even if the condition had been relevant, it would have beenineffective since the persons to whom the granting of traffic rights had beendelegated were among the members of the board of directors of Air France or ofthe board of the holding company. This, in their view, engendered a risk ofdiscrimination for competing air transporters which could not be averted by a merecommitment.

388.
    The applicants point out that Member States may require airlines to submitoperating programmes for any specific route prior to the start of services. InFrance, the task of clearing or refusing to clear operating programmes is carriedout by the head of the Direction Générale de l'Aviation Civile (Directorate-Generalfor Civil Aviation) and by the head of the Service du Trafic Aérien (Air TrafficService). Those authorities may effectively prevent airlines from exercising theirautomatic traffic rights by illegally refusing to clear operating programmes. Theevents leading to and following the adoption of Commission Decision 94/290 (citedabove in paragraph 266) illustrate this; the applicants refer to a number of lettersfrom the above authorities containing such refusals.

389.
    In any event, Air France, the Direction Générale de l'Aviation Civile and theService du Trafic Aérien all come within the general supervision of the Minister of

Transport. The case-law of the Court of Justice confirms that such organic linksbetween an undertaking competing on a market with other undertakings and thebodies regulating that market contravene Article 90 of the Treaty, in conjunctionwith Article 86, because of the very risk of discrimination inherent in such asituation (Case C-202/88 France v Commission [1991] ECR I-1223, paragraphs 51and 52; Case C-69/91 Decoster [1993] ECR I-5335, paragraphs 12 to 22).

390.
    The Commission contends that those arguments are unfounded.

Findings of the Court

391.
    With regard to the allegations to the effect that condition No 10 is too limited, itshould be noted that European airline companies must still obtain traffic rights forroutes between the EEA and non-EEA destinations, which are not covered byRegulation No 2408/92. As the Commission has pointed out before the Court, AirFrance is in competition on those routes with other French airline companies suchas TAT, Euralair, Corsair, AOM and Air Liberté. Condition No 10 was thereforerelevant for that air traffic sector. The same applies with regard to the trafficcovered by Regulation No 2408/92 in so far as, irrespective of actual traffic rights,the national authorities may, following a formal authorisation procedure, decide onthe detailed rules for applying that regulation. Furthermore, the applicants and theinterveners supporting them have specifically claimed that the French authoritiesmisapplied the provisions of that regulation for the purpose of protecting theinterests of Air France and Air Inter.

392.
    It should be added that, while the principle of non-discrimination was the basis forrequiring the French authorities not to accord preferential treatment to Air France,the usefulness of condition No 10 lay, as has already been stated above (paragraph348), in the fact that it allowed the Commission to refer the matter directly to theCourt of Justice without first being required to institute the procedure under thefirst subparagraph of Article 93(2) or under Article 169 of the Treaty.

393.
    The other arguments put forward refer to the risk that the French authorities,because of their close links with Air France, might have prevented other companiesfrom asserting their traffic rights. They are thus confined to questioning whethercondition No 10 could be effectively applied and cannot therefore be consideredin the present context (see paragraph 292 above).

394.
    It follows that the arguments directed against condition of authorisation No 10 mustbe rejected.

(h) Condition of authorisation No 11

395.
    This condition required the French authorities to ensure that 'Air France does notoperate, during the period covered by the Plan, more scheduled routes betweenFrance and the other countries in the European Economic Area than it did in 1993(89)‘.

Summary of the applicants' arguments

396.
    The applicants take the view that this condition was ineffective in so far as itprovided a maximum cap but did not prevent Air France from opening new routesand closing others. Air France could also increase the number of routes itoperated beyond the limit of 89 by means of wet leases, and the number of pointsserved to and from France by introducing indirect routings via other MemberStates, as continuations of existing routes, the London-Paris route, for instance,becoming London-Paris-Rome. Air Inter, the applicants submit, was alreadybeginning to serve European routes previously operated by Air France, with a viewto the merger envisaged in 1997. As a result, Air France was in a position to opennew routes up to the limit of 89; whenever it wished to open a new route, it neededonly to hand over one of its existing routes to Air Inter, in the knowledge that alltheir European operations would in any event be merged in 1997.

397.
    Regarding the transfer of routes from Air France to Air Inter, the applicants recallthe position stated by the director of the Air France group, as reported in a pressarticle published in September 1994. According to that report, Air Inter was torecover a number of routes from Air France during the following two years: underits own designation, it was to operate flights to the Maghreb countries, the IberianPeninsula, Great Britain and Ireland. The directors of the group consideredthemselves entitled to alter designations in this way, particularly since Air Inter wasnot affected by the same capacity limitations.

398.
    Finally, the applicants note that statistics compiled by the Official Airline Guideindicate that Air France operated only 64 routes within the EEA in May 1994. Asa result, the Commission's acceptance of the limitation of Air France's network to89 routes left it free to open 25 additional routes between France and other EEAStates. Moreover, condition No 11 did not cover domestic French routes or routesbetween two EEA States other than France.

399.
    The Commission, the French Republic and Air France contend that thosearguments are unfounded.

Findings of the Court

400.
    Regarding wet leases and extensions of existing routes, the Commission has statedbefore the Court that these two types of measure came within the ambit ofcondition No 11. The applicants noted that interpretation but did not challenge it.

401.
    So far as the reference to Air Inter is concerned, suffice it to recall that theconduct of that company, which was independent of Air France for the durationof its restructuring, is irrelevant in the present context, a fortiori since theallegations aired concerning the transfer of routes between Air France and AirInter are based on a press article which appeared after the contested decision wasadopted.

402.
    Regarding the exclusion of domestic French routes and routes between EEA Statesother than France, it is sufficient to point out that the Commission was entitled totake the view that the economic impact of those routes was so negligible that itcould be discounted in the present context (see paragraph 370 above).

403.
    As to the fact that Air France could open new routes and close others, whilerespecting the maximum figure of 89 routes, the Commission has properly pointedout before the Court that it could not have sought to prevent Air France fromreacting to market demand, provided that all the conditions of authorisation werecomplied with. Without such flexibility, the success of the restructuring plandesigned to restore Air France's financial viability and competitiveness would havebeen compromised.

404.
    Finally, in so far as it has been contended that Air France was operating only 64routes in the EEA in May 1994, with the result that the Commission's acceptanceof a network of 89 routes authorised Air France to open 25 additional routes, theCourt takes the view that the Commission did not exceed the limits of its broaddiscretion in accepting the number of routes which Air France had operated in1993, just as it limited, under conditions of authorisation Nos 8 and 12 respectively,the supply of Air France and Air Charter to the level reached in 1993.

405.
    It follows that the arguments directed against condition of authorisation No 11cannot be accepted.

(i) Condition of authorisation No 12

406.
    This condition required the French authorities to 'limit, during the period coveredby the Plan, the supply of Air Charter to its 1993 level (3 047 seats and 17 aircraft),with a possible annual increase corresponding to the market growth rate‘.

Summary of the applicants' arguments

407.
    The applicants submit that the limitation on Air Charter's supply was ineffective. Air Charter is not an air carrier but a marketing agency whose activity is to charteraircraft to tour operators. Of the 17 aircraft operated by Air Charter in 1993, onlyeight belonged to the Air France group and nine were leased. The leases were toterminate during 1995. The supply limitations were offered by the Frenchauthorities and accepted by the Commission at a time when Air Charter hadalready notified the lessors that it would not renew its leases. Air Charter wastherefore allowed to add up to nine replacement aircraft to its fleet and thuspotentially to increase its capacity by 20% to 25% on an already highly competitivemarket. The lessors recovering their nine aircraft would necessarily have competedwith Air Charter, which, as a beneficiary of the aid, would have been able to leaseits aircraft to tour operators at artificially low prices.

408.
    The applicants add that the Plan did not contemplate any restructuring measurefor Air Charter, which would nevertheless receive part of the aid. The supplylimitation was thus an open invitation for a State-aided company, not subject torestructuring measures, to use the aid to double its fleet and, in any event, toincrease supply on the French charter market.

409.
    The United Kingdom takes the view that Air France or Air Charter ought to havemade a commitment that Air Charter would buy only the number of aircraftrequired to replace the capacity lost by non-renewal of those leases.

410.
    The Commission, the French Republic and Air France contend that thosearguments are unfounded.

Findings of the Court

411.
    Concerning the risk that Air Charter might apply artificially low prices, suffice it topoint out that the company, more than 50% owned by Air France, was required tocomply with condition of authorisation No 9, which prohibited it from applyingtariffs below those of its competitors for an equivalent supply. The Commissionwas accordingly entitled to form the view that Air Charter would manage its supplyon the basis of market requirements alone, in the same way as any othercommercial undertaking.

412.
    Nor, inasmuch as it prohibited any increase in Air Charter's supply beyond its 1993level, subject to market growth, did condition No 12 have the effect of authorisinga doubling of the company's operating fleet. As the Commission has stressedbefore the Court, it was in no way obliged to require Air Charter either to renewthe leasing contracts which it had just terminated for commercial and financialreasons or to refrain from replacing those aircraft whose leases had expired, whichwould have penalised Air Charter by reducing its operating fleet by more than50%.

413.
    In so far as it has been contended that Air Charter would receive part of the aideven though the Plan did not envisage any restructuring measure for the company,suffice it to state that Air France's restructuring plan did indeed concern thecharter sector of the Air France group (p. 22 of the Plan) and that, in any event,condition of authorisation No 6 prohibited any use of the aid for purposes otherthan restructuring.

414.
    The arguments directed against condition of authorisation No 12 must accordinglybe rejected.

(j) Condition of authorisation No 13

415.
    The French authorities were required under this condition to 'guarantee that anytransfer of goods or services from Air France to Air Charter reflects marketprices‘.

Summary of the applicants' arguments

416.
    The applicants consider that this condition was ineffective. It was, they submit,unworkable because the notion of 'market price‘ is imprecise and required AirFrance to treat a subsidiary — the chairman of which had been appointed head ofAir France's French operations — at arm's length while simultaneously granting itpart of the aid. In addition, the commitment did not seek to control the sale ofgoods and provision of services by Air Charter to Air France, which therefore didnot have to reflect market prices.

417.
    The Commission contends that those arguments are unfounded.

Findings of the Court

418.
    In so far as the present arguments are limited to questioning whether conditionNo 13 could be effectively applied, suffice it to recall that they must be excludedfrom consideration in the present context (see paragraph 292 above).

419.
    To the extent to which it has been contended that this condition covered neitherthe sale of goods nor the provision of services by Air Charter to Air France, it mustbe noted that the Commission has stated before the Court, without beingchallenged, that Air Charter did not supply significant goods or services to AirFrance. In addition, the applicants in Case T-371/94 have themselvesacknowledged, in connection with condition of authorisation No 12, that AirCharter was not an air carrier, but rather a marketing agency whose activity wasto charter aircraft to tour operators and which had approximately 40 employees,

but no mechanics or crew personnel (paragraph 234 of the application in CaseT-371/94). In those circumstances, the Commission was justified in discounting theeconomic impact that such sales or provisions of services might have had.

420.
    It follows that the arguments directed against condition of authorisation No 13cannot be upheld.

(k) Conditions of authorisation Nos 15 and 16

421.
    The French authorities were required by these conditions to:

—    '[modify,] with the cooperation of Aéroports de Paris ..., as soon aspossible, ... the traffic distribution rules for the Paris airport system inaccordance with the Commission decision of 27 April 1994 on the openingof the Orly-London link‘ and

—     'ensure that the work required to adapt the two terminals at Orly carriedout by Aéroports de Paris, and a possible saturation of one or other ofthose terminals, do not affect competitive conditions to the detriment of thecompanies operating there‘.

Summary of the applicants' arguments

422.
    The applicants submit that condition No 15 was no more than a shallow pretence,given the French authorities' clear intention not to comply with the decision of27 April 1994, as evidenced already in May 1994 by the adoption of rules for theallocation of traffic rights within the Paris airport system which were in clearviolation of Community rules. They add that, while the contested decisionauthorised Air France to receive the first tranche of the aid immediately, conditionNo 15 required that Air France's competitive advantage resulting from the Parisairport traffic distribution rules be eliminated at some time defined only by theterms 'as soon as possible‘.

423.
    The applicants emphasise the illusory nature of condition No 16, which, they claim,was violated even before it was imposed through the discriminatory conditions,established before the adoption of the decision, for the transfer of all Frenchcompanies outside the Air France group from Orly West to Orly South and theregrouping of Air France and Air Inter at Orly West. Aéroports de Paris and AirFrance both come within the supervision of the Minister of Transport. Suchorganic links, the applicants argue, contravene Article 90 of the Treaty, inconjunction with Article 86, because of the inherent risk of discrimination to whichthey give rise. The plan to adapt the Orly terminals, they claim, was conceived ina way which made it difficult and costly for Air Inter's competitors to begin new

services from Orly South. As a result, only a radical modification of the Plan couldhave avoided discrimination against Air France's competitors.

424.
    On a general level, the applicants submit, with regard to these conditions, that acommitment to obey the law cannot be considered as offsetting the aid's effects,since the French authorities must comply with the law in any event.

425.
    The Commission contends that those arguments are unfounded.

Findings of the Court

426.
    The arguments directed against conditions Nos 15 and 16 are limited toemphasising that those conditions were both ineffective and lacking in utility. It isthus sufficient to point out, first, that arguments seeking only to question whethera condition governing authorisation of the aid could be effectively applied must beexcluded from examination in the present context (see paragraph 292 above) and,second, that, on the assumption that the French authorities were already under aduty, by virtue of other Community law provisions, to comply with the obligationsset out in conditions of authorisation Nos 15 and 16, the usefulness of thoseconditions lies in the fact that they enabled the Commission to refer the matterdirectly to the Court of Justice without first being obliged to institute administrativeproceedings (see paragraph 348 above).

427.
    The arguments directed against conditions of authorisation Nos 15 and 16 musttherefore be rejected.

428.
    Since none of the arguments directed against the conditions of authorisation hasbeen upheld, the contention that the method chosen by the Commission to examinewhat impact the aid would have on the common interest was mistaken must beconclusively dismissed (see paragraphs 295 and 296 above).

429.
    It follows from the foregoing that, subject to paragraphs 238 to 280 above, all ofthe claims alleging that the Commission committed errors in forming the view thatthe aid was intended to facilitate the development of economic activity and did notadversely affect trading conditions to an extent contrary to the common interestmust be rejected. The applicants and the interveners supporting them have beenable to defend their rights and the Court has been able to exercise its power ofreview. Consequently, and with the exception of the assessment of the effects ofthe aid on the competitive position of Air France in regard to its network of non-EEA routes and the associated feeder traffic, the contested decision satisfies in thatregard the requirements of Article 190 of the Treaty, and the claim that thestatement of reasons was inadequate must therefore be rejected.

The contentions alleging that the Commission committed errors in concluding that therestructuring plan was capable of restoring Air France's economic viability

    The alleged general inadequacy of the restructuring plan

— Summary of the parties' arguments

430.
    The applicants and the interveners supporting them make the general criticism thatthe restructuring plan was inadequate and imprecise. The applicant in CaseT-394/94 submits that the Commission failed adequately to demonstrate, in thecontested decision, the extent to which the aid was necessary to finance the vagueand inadequate proposals disclosed in the Plan, and that it failed to insist on a plansetting out precise details of the steps necessary to restore the viability of AirFrance. The applicants in both cases claim that the Commission failed to provideadequate reasoning for the contested decision, on the ground that it neglected toconsider third-party comments filed during the administrative procedure.

431.
    The Commission takes the view that the contested decision is adequately reasonedon that point. As regards the substance, it states that it assessed the coherence andeffectiveness of the restructuring plan on its merits and did not commit any errorsof assessment or of law.

— Findings of the Court

432.
    It is first necessary to consider whether the contested decision was adequatelyreasoned in regard to the restructuring plan drawn up and submitted by Air France,particularly in view of the essential grounds of complaint submitted by the partiesconcerned during the administrative procedure (see paragraph 96 above).

433.
    In this connection, it must be noted that the parties concerned stated, during theadministrative procedure, that the restructuring plan was inappropriate, inadequateand excessively vague, and thus not capable of restoring Air France's viability. Itwas, they argued, even less stringent than the preceding plan, PRE 2, which hadalready been considered to be insufficient in August 1992. It did not constitutewhat was necessary for Air France, but only what was acceptable to France, sincePRE 2, which was more stringent than the Plan here in issue, had been withdrawnbecause of union protests. Furthermore, the Commission ought to have takenaccount in this context of all the restructuring plans previously issued by AirFrance, which had all failed because of the political situation and the power of theunions.

434.
    The parties concerned emphasised that the restructuring plan would have noprospect of success if it were not possible to dismiss excess staff, cut wages andrequire staff to improve productivity. The only realistic means whereby to reduceAir France's costs, namely an increase in staff productivity, was envisaged on a

voluntary basis. It was thus highly unlikely that the desired 30% increase inproductivity would be achieved. The Plan did not recommend any reduction in thebenefits enjoyed by Air France staff. It provided only for a reduction of 5 000 jobsover three years, whereas Lufthansa had shed 8 000 jobs over two years and BritishAirways 4 000 over one year. In addition, the Plan failed to take account of theovercapacity crisis within the Community air transport sector; indeed, it evenenvisaged an increase in the fleet and in capacity.

435.
    The parties concerned added that the amount of FF 20 billion provided for in thePlan as State aid was not clear. Referring to a press article, they pointed out thatthere were indications of a lack of transparency in Air France's accounts. TheCommission, they argued, ought to have ensured that Air France's accounts werenot hiding anything. Furthermore, the chairman of Air France stated in February1994, in a press article, that the company had to obtain FF 8 billion by the end ofMarch of that year; in the context of PRE 2, the sum of FF 5 billion was discussed.

436.
    Finally, the restructuring plan never mentioned the Air France group and did notimpose any restriction on the group as a whole. It related only to Air France anddid not allude to the group's future intentions regarding Air Inter. However, AirInter was in equal need of restructuring. Consequently, the Commission ought tohave insisted that the Plan also cover the operations of Air Inter and Air Charter.

437.
    In the light of those observations, the Court points out that, in the contesteddecision, the Commission traced the history of the various restructuring plansadopted by Air France with a view to resolving its financial problems. InSeptember 1991, Air France adopted a first restructuring plan (CAP '93), whichprovided inter alia for a capital injection of up to FF 5.8 billion. In October 1992,after suffering a further deterioration in its financial situation, the Air France groupadopted a second restructuring plan (PRE 1), which, however, proved in early 1993to be unable to redress the situation of the group and was for that reasonabandoned. In September 1993, a third plan (PRE 2) was launched, only to bewithdrawn, in the face of union objection, in favour of the Plan (contested decision,OJ, p. 74). So far as the disputed restructuring plan is concerned, the Commissionpointed out that it had been drawn up by Air France on the basis of a paperdrafted by the consultants Lazard Frères, which also fixed the amount ofrecapitalisation needed to redress Air France's financial structure and profitability. The Commission stated that the Plan, whose purpose was to be attained between1 January 1994 and 31 December 1996, provided for a 30% increase in AirFrance's productivity (contested decision, OJ, p. 75).

438.
    The Commission then went on to specify the 'particular ... topics‘ on which thePlan focused, namely, a reduction in costs and financial expenses (through adecrease in investments, a reduction in operating costs and increased productivitycoupled with a decrease in financial charges), a different conception of the productand better utilisation of resources (in particular through marketing initiatives, and

at fleet and network level), reorganisation of the company and employeeparticipation. The Commission added that implementation of the Plan was to befinanced through the increase in capital and the sale of non-core assets (contesteddecision, OJ, pp. 75 and 76).

439.
    With regard to the assessment of the viability of the restructuring plan, theCommission took the view that it set out a number of measures that representedgenuine efforts toward the restructuring of the airline. It recognised in particularthe great efforts undertaken in the social field (wage freeze, block on promotions,better utilisation of working time, distribution of free shares to employees incompensation for reductions in wages). The staff concerned had approved theprogramme through a referendum. Following approval by the unions, theCommission stated that it was convinced that the social measures provided for inthe Plan could be fully adopted and successfully implemented (contested decision,OJ, p. 82).

440.
    In addition, the Commission considered that the restructuring of the airline intoprofit centres designed to rationalise its operation represented one of the strongpoints of the Plan. It took the view that the improvements in productivityenvisaged by the Plan would lead Air France to a 'good average‘ positioncompared to other airlines, pointing out that it based its analysis on the ERPKefficiency indicator. After explaining how that unit of measurement functioned, theCommission found that Air France's productivity would improve by 33.3% duringthe restructuring period. The ratio to be achieved in 1996 was expected to hehigher than the estimated average ratio of the seven other largest European airlines(Lufthansa, British Airways, KLM, Alitalia, Iberia, SAS and Swissair). In short, theCommission found that the Plan was capable of restoring the economic andfinancial viability of Air France, particularly since the French Government hadmade commitments that Air France would be run in accordance with commercialprinciples and treated as a normal undertaking (contested decision, OJ, p. 83).

441.
    That statement of reasons constitutes an adequate response to the observations ofthe parties concerned and indicates sufficiently the Commission's reasoning withregard to the general aspects of the restructuring plan. It demonstrates that theCommission did not overlook the preceding restructuring plans that had failed torestore Air France's position. In particular, the Commission noted the fact thatPRE 2 had failed because it had not been accepted either by Air France's staff orby the unions, whereas the new plan did meet their approval. It is clear that onlyan achievable restructuring plan, even if less stringent than a previous unachievableplan, can have any chance of success. The Commission was thus under noobligation to provide more detailed reasoning on that point.

442.
    As to whether the measures in the restructuring plan were sufficient for attainingthe intended objectives of rationalisation and debt repayment, the description ofthe measures envisaged and the setting up of the arrangements for supervision bythe Commission under Articles 1 and 2 of the contested decision constitute a

sufficient statement, as regards the reasoning of that decision, that the Commissionbelieved that it was possible for the restructuring plan in question to be achievedand that it had reserved for itself the means of recourse that it thought appropriate,in the event that such achievement were compromised. If the conditions set outin Article 1 were not complied with, the Commission could refer the matter directlyto the Court of Justice under the second subparagraph of Article 93(2) of theTreaty (see paragraph 348 above). Furthermore, Article 2 provided that properimplementation of the restructuring plan was a condition governing payment of thesecond and third tranches of the aid.

443.
    When the restructuring plan is considered in this light, the Commission was clearlynot under an obligation to provide specific explanations comparing Air France'splan and those of other airlines such as Lufthansa and British Airways. Thoseplans related to other airlines restructured at different times.

444.
    The ground of complaint alleging lack of clarity in Air France's accounts wasunsupported by any factual evidence. It merely referred to a press article andcalled on the Commission to take care that Air France's accounts were not hidinganything. The Commission was therefore under no obligation to state an expressview on this point by indicating, in particular, whether or not it had acceded to thatrequest.

445.
    In so far as it has been alleged that the restructuring plan in dispute could not belimited to Air France alone but ought to have covered other companies in thegroup, it is sufficient to point out that the Commission cannot require a MemberState to draw up a restructuring plan for a company which, in that State's opinion,is not in need of restructuring. However, the question whether and to what extentthe Commission, in examining and authorising a plan which seeks to restructure acompany forming part of a group, may be required to take account of othercompanies in the group is not relevant to the reasoning of the contested decisionin regard to the adequacy of the restructuring plan in question, which is confinedto Air France. The questions concerning the involvement of the entire group havebeen addressed above in a separate context (paragraphs 298 to 324). The sameapplies with regard to the specific question of Air France's capacity, which wasitself also the subject of specific examination above (paragraphs 357 to 373).

446.
    It follows that the reasoning of this part of the contested decision must beconsidered to comply with the requirements of Article 190 of the Treaty.

447.
    With regard to the general criticism that the restructuring plan was inadequate andimprecise, suffice it to point out that the Commission enjoys a broad discretionwhen assessing a plan designed to restructure an undertaking in economic andfinancial difficulties, and that its assessment also frequently relates to confidentialinformation to which competitors of the undertaking concerned may not haveaccess. Consequently, it is only in cases where the Commission has committed a

particularly manifest and serious error when assessing such a plan that the Courtmay rule against the authorisation of State aid intended to finance suchrestructuring. In the present instance, no such error has been established. However, the Court points out that it has been unable to examine the productivitytargets to be achieved by Air France with specific regard to its non-EEA air routes,since the reasoning on this point in the contested decision is insufficient (seeparagraph 280 above).

448.
    Subject to this last proviso, the arguments directed against the Commission'sapproval of Air France's restructuring plan must be rejected.

449.
    The contention of the applicants in Case T-371/94 that this plan in reality soughtnot to restore Air France's viability but to respond to government objectivestherefore has no basis in fact or in law.

The remaining contentions

450.
    The applicants and the interveners supporting them argue that Air France'srestructuring plan wrongly excluded consideration of Air Inter, Air France's sale ofa maximum of assets not linked to air transport, and an overall reduction incapacity. In addition, they contend, that plan was based extensively on the ERPKindicator designed to measure Air France's productivity, even though it was aninappropriate unit of measurement for that purpose. Furthermore, the measuresenvisaged by Air France's restructuring plan were, they claim, much less severethan those adopted by other airline companies.

451.
    In that regard, it is enough to refer to what has been stated above, in theexamination of other contentions, in order to conclude that none of the abovearguments directed against Air France's restructuring plan can be upheld.

452.
    As regards the claim of the applicants and the interveners supporting them that theCommission was wrong to authorise the purchase of 17 new aircraft as a featureof the restructuring plan, the Court points out that, in the absence of clarificationas to the financing of that investment and explanation as to its legal nature, it is notin a position to examine this contention.

III — The plea alleging infringement of Article 155 of the Treaty

453.
    In so far as the applicant in Case T-394/94 submits that, in failing to apply Articles92 and 93 of the Treaty correctly, the Commission also infringed Article 155 of theTreaty, it must be stated that the examination of the substantive pleas raised by theapplicants and the interveners supporting them has failed to disclose any error ofassessment or of law in the application of Articles 92 and 93. Furthermore, thepurpose of Article 155 of the Treaty is to provide a general definition of the

Commission's powers. It cannot therefore be argued that each time theCommission infringes a specific Treaty provision such infringement involves aninfringement of the general provision of Article 155. It follows that this plea mustin any event be dismissed.

IV — Conclusion

454.
    Examination of all of the pleas in law raised in the present litigation has made itclear that the contested decision suffers from insufficient reasoning on two points,concerning, respectively, the purchase of 17 new aircraft for FF 11.5 billion (seeparagraphs 84 to 120 above) and the competitive position of Air France on thenetwork of its non-EEA routes with the associated feeder traffic (see paragraphs238 to 280 above). Those two points are of crucial importance within the generalscheme of the contested decision. That decision must consequently be annulled. In those circumstances, it is no longer necessary to rule on the request by theapplicant in Case T-394/94 that all relevant files and documents held by theCommission should be produced.

Costs

455.
    Under Article 87(2) of the Rules of Procedure, the unsuccessful party is to beordered to pay the costs if they have been asked for in the successful party'spleadings. Since the Commission has been unsuccessful and the applicants and theMaersk interveners have asked for costs to be awarded, the Commission must beordered to pay the costs.

456.
    Pursuant to Article 87(4) of the Rules of Procedure, the French Republic, theKingdom of Denmark, the United Kingdom, the Kingdom of Sweden, the Kingdomof Norway and Air France must bear their own costs.

On those grounds,

THE COURT OF FIRST INSTANCE (Second Chamber, ExtendedComposition)

hereby:

1.    Joins Cases T-371/94 and T-394/94 for the purposes of judgment;

2.    Annuls Commission Decision 94/653/EC of 27 July 1994 concerning thenotified capital increase of Air France;

3.    Orders the Commission to pay the costs, including those of the intervenersMaersk Air I/S and Maersk Air Ltd;

4.    Orders Compagnie Nationale Air France, the French Republic, theKingdom of Denmark, the United Kingdom of Great Britain and NorthernIreland, the Kingdom of Sweden and the Kingdom of Norway to bear theirown costs.

Bellamy
Lenaerts
Briët

        Kalogeropoulos                        Potocki

Delivered in open court in Luxembourg on 25 June 1998.

H. Jung

A. Kalogeropoulos

Registrar

President

Summary

    Facts and procedure

II - 4

        Administrative procedure

II - 4

        The contested decision

II - 5

        Procedure before the Court of First Instance

II - 9

    Forms of order sought

II - 10

    Substance

II - 11

        I — The pleas alleging irregularities in the conduct of the administrative procedure

II - 12

            Summary of the parties' arguments

II - 12

            Findings of the Court

II - 16

                General aspects

II - 16

                The communication of 3 June 1994

II - 18

                The time taken for consideration of the case

II - 19

                The need for external experts

II - 20

                The translation error

II - 20

                The participation of other Member States

II - 20

                Conclusion

II - 21

        II — The pleas alleging errors of assessment and errors of law committed by theCommission in breach of Article 92(3)(c) of the Treaty and Article 61(3)(c) ofthe EEA Agreement

II - 21

            General aspects

II - 21

            The contentions based on breach of the principle of proportionality applicablein regard to State aid

II - 22

                A — The contention that the Commission was wrong to authorise thepurchase by Air France of 17 new aircraft

II - 23

                    Summary of the parties' arguments

II - 23

                    Findings of the Court

II - 24

                B — The contention that the Commission wrongly authorised the financingof operating costs and operational measures of Air France

II - 31

                    Summary of the parties' arguments

II - 31

                    Findings of the Court

II - 34

                C — The contention that the securities issued by Air France between 1989and 1993 were misclassified

II - 36

                    Summary of the parties' arguments

II - 36

                    Findings of the Court

II - 39

                D — The contention that Air France's debt/equity ratio was misconstrued

II - 41

                    Summary of the parties' arguments

II - 41

                    Findings of the Court

II - 43

                E — The contention that the Commission wrongly failed to require AirFrance to sell disposable assets

II - 46

                    Summary of the parties' arguments

II - 46

                    Findings of the Court

II - 51

            The contentions that the Commission erred in considering that the aid wasintended to promote the development of economic activity and would notadversely affect trading conditions to an extent contrary to the commoninterest

II - 57

                A — The contention that the Commission wrongly authorised aid intendedfor the development, not of an economic activity, but of a particularundertaking

II - 57

                    Summary of the parties' arguments

II - 57

                    Findings of the Court

II - 58

                B — The contention that the Commission wrongly authorised aid whichadversely affected trading conditions to an extent contrary to thecommon interest

II - 58

                    Summary of the parties' arguments

II - 58

                    Findings of the Court

II - 64

                    1. As regards the statement of reasons

II - 64

                    2. As regards the soundness of the reasoning

II - 71

                    (a) Condition of authorisation No 1

II - 74

                    Summary of the applicants' arguments

II - 75

                    Findings of the Court

II - 78

                    (b) Condition of authorisation No 3

II - 81

                    Summary of the applicants' arguments

II - 81

                    Findings of the Court

II - 83

                    (c) Condition of authorisation No 6

II - 85

                    Summary of the applicants' arguments

II - 85

                    Findings of the Court

II - 86

                    (d) Condition of authorisation No 7

II - 86

                    Summary of the applicants' arguments

II - 86

                    Findings of the Court

II - 87

                    (e) Condition of authorisation No 8

II - 87

                    Summary of the applicants' arguments

II - 88

                    Findings of the Court

II - 90

                    (f) Condition of authorisation No 9

II - 92

                    Summary of the applicants' arguments

II - 92

                    Findings of the Court

II - 93

                    (g) Condition of authorisation No 10

II - 94

                    Summary of the applicants' arguments

II - 94

                    Findings of the Court

II - 95

                    (h) Condition of authorisation No 11

II - 95

                    Summary of the applicants' arguments

II - 96

                    Findings of the Court

II - 96

                    (i) Condition of authorisation No 12

II - 97

                    Summary of the applicants' arguments

II - 97

                    Findings of the Court

II - 98

                    (j) Condition of authorisation No 13

II - 99

                    Summary of the applicants' arguments

II - 99

                    Findings of the Court

II - 99

                    (k) Conditions of authorisation Nos 15 and 16

II - 100

                    Summary of the applicants' arguments

II - 100

                    Findings of the Court

II - 101

            The contentions alleging that the Commission committed errors in concludingthat the restructuring plan was capable of restoring Air France's economicviability

II - 102

                The alleged general inadequacy of the restructuring plan

II - 102

                    — Summary of the parties' arguments

II - 102

                    — Findings of the Court

II - 102

                The remaining contentions

II - 106

        III — The plea alleging infringement of Article 155 of the Treaty

II - 106

        IV — Conclusion

II - 107

    Costs

II - 107


1: Language of the cases: English.

ECR