EUROPEAN COMMISSION. State aid SA Spain Prolongation of a start-up aid scheme to airlines operating from the Canary Islands

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1 EUROPEAN COMMISSION Brussels, C(2017) 6546 final PUBLIC VERSION This document is made available for information purposes only. Subject: State aid SA Spain Prolongation of a start-up aid scheme to airlines operating from the Canary Islands Sir, 1. PROCEDURE (1) On 4 August 2017 the Spanish authorities notified to the Commission, in accordance with Article 108(3) of the Treaty on the Functioning of the European Union (TFEU) 1, their intention to prolong an existing aid scheme, registered under case number SA.37121, authorised by the Commission in April 2014 and aiming to provide support to airlines for the start-up of new routes from airports in the Canary Islands. The notification has been registered under case number SA (2) The Spanish authorities provided additional information on 30 August, 6 September and 11 September DESCRIPTION OF THE MEASURE 2.1. The initial scheme (3) The Commission refers to the description of the initial scheme SA in Section 2 of the decision of 9 April 2014 which authorised it. That initial scheme was notified and authorised for the period from 20 July 2013 to 31 December 2017, understood as 1 OJ L 138 of Excmo. Sr. D. Alfonso María Dastis Quecedo Ministro de Asuntos Exteriores y de Cooperación Plaza de la Provincia 1 E MADRID Commission européenne/europese Commissie, 1049 Bruxelles/Brussel, BELGIQUE/BELGIË - Tel

2 the period during which the Spanish authorities may conclude with airlines contracts of a maximum duration of three years, whereby start-up aid is granted. Given the maximum authorised duration of the contracts, it was foreseen that aid contractually agreed under the scheme could still be disbursed until 31 December Canarian Airports (4) There are eight Canarian Airports (Lanzarote, Fuerteventura, Gran Canaria, Tenerife North, Tenerife South, La Palma, La Gomera, El Hierro). Each of the Canary Islands has a single airport, except for Tenerife which has two. (5) The Canary Islands form part of the outermost regions covered by Article 349 of the TFEU, which the Commission considers suffer from permanent handicaps which they face by reason of their remoteness and specific constraints in integrating into the internal market Objective of the aid (6) The measure provides for the prolongation of the start-up aid scheme mentioned in recital 1 ( Flights Development Program in the territory of the outermost region of the Canary Islands ) and is principally designed to support the development of the tourism sector in the Canary Islands, thereby encouraging job creation, and indirectly supporting the development of other economic sectors in the archipelago. In this regard the scheme targets new tourist markets outside the EU with the intention of achieving a greater geographical diversification of the tourism sector. (7) The scheme also aims to improve the connectivity of the region given its remoteness. (8) However, the planned number of new routes (50 routes), set out when the Programme was created in July 2013 has not yet been achieved. (9) As a result, Canarian airports are, according to the Spanish authorities, still lacking connections to certain regions. There are still new tourist markets that have no regular air connection to the Canary Islands. (10) This is why the Spanish authorities have notified the planned prolongation of the scheme by four years while keeping the budget at the same level as foreseen under the initial scheme, and with no modification of the other rules forming the scheme Form of the aid (11) As in its initial version, the scheme will select airlines through a call for proposals as described in Section 2.8. of the Initial Decision for the opening of new routes between airports located in the Canary Islands and other airports located both within the EU and in third countries. (12) The start-up aid is provided as a direct grant to passenger airlines whose proposals have been accepted. (13) The proposed aid to support the launch of new routes is intended to cover up to 50% of the costs of airport charges incurred in operating the new route for a duration of up to three years for each route concerned. 2

3 2.5. National legal basis (14) The scheme is based on the Acuerdo de Resolución relativa a la creación de un 'Programa de Desarrollo de Vuelos en el Ámbito Territorial de la Región Ultraperiférica de Canarias para which will be amended by the "Propuesta de Resolución relativa a la modificación del 'Programa de Desarrollo de Vuelos en el Ámbito Territorial de la Región Ultraperiférica de Canarias para ", a draft of which was submitted as part of the notification file Budget (15) In its initial version, the scheme had a maximum total budget of EUR 10 million, which was to be distributed annually in relation to budgetary availability each year. The budget is not increased by the notified prolongation. (16) The following aid amounts have so far been disbursed: 2.7. Duration of the scheme and the aid (17) The implementation of the prolonged scheme will only start when approval of the European Commission has been obtained. (18) The period in which the Spanish authorities can conclude contracts with airlines for the granting of start-up aid for the opening of new routes will be prolonged from 31 December 2017 until 31 December Given that such contracts can provide support for up to three years, aid contractually agreed under the scheme may be disbursed until 31 December Beneficiaries (19) As under the initial scheme, the beneficiaries of the aid will be airlines which satisfy the technical criteria as described below, and which are chosen following the tendering procedure. (20) The estimated number of beneficiaries of the scheme is between 11 and 50. 3

4 Eligible routes (21) The scheme defines the new routes that are eligible for aid by various cumulative criteria, including: Routes that have not been served by an airline offering transport to paying passengers within the 12 months preceding the planned start date for the operation of the new services. Routes where, prior to the publication of the call for proposals, there had been no announcement by any airline of a planned start of operation on the route during the 12 month period following the publication. Routes to destinations that are not likely to result in a transfer of passengers from an existing route involving another Canarian airport. Routes linking only the following Canarian airports to another airport outside the region: Lanzarote, Fuerteventura, Gran Canaria, Tenerife North, Tenerife South, La Palma, La Gomera or El Hierro Business Plan (22) Applicant airlines for start-up funding under the proposed scheme have to produce a business plan for each route. The business plan will be required to include at least the following information: The period for which the airline requires the start-up aid. A study of the viability of the route, where the future viability after the period of support is justified. Details of the planned promotion, marketing and pricing of the new services. Estimate of the expected number of passengers in each direction on the route and the expected profile of the passengers. (23) The business plan must clearly show that the route will become profitable on its own merits after the start-up aid has ceased to be paid out, which can be no longer than three years after the commencement of operation on, the route. (24) Applicant airlines will also be asked to include in their business plans a justification of why they would not have operated the route in question in the absence of the aid Selection procedure (25) A detailed description of the process for selecting proposals is contained in Section 2.8. and 2.9 of the Initial Decision. That process will remain unchanged following the notified prolongation Aid intensity and cumulation (26) A detailed description of the rules on aid intensity and cumulation is contained in Section 2.10 of the initial decision. That process will remain unchanged following the notified prolongation. 4

5 2.11. Commitments (27) As outlined in the Initial Decision, Section 2.11., the Spanish authorities have committed not to linking the criteria for selection of a particular airline under the scheme to the continued operation of any other existing routes on which the airline in question may be operating from / to the Canary Islands. (28) With regard to the prolongation of the scheme the Spanish authorities commit to complying with the rules on transparency as provided for in points 162 and 163 of the Community Guidelines on State aid to airports and airlines (the "Aviation Guidelines") 2 as amended by the "Transparency Communication" ASSESSMENT OF THE AID 3.1. Existence of aid within the meaning of Article 107(1) TFEU (29) The Commission notes that the only modifications to the initial scheme concern the prolongation in time and the transparency commitment. All other elements have remained unchanged compared to the scheme as assessed by the Commission in the Initial Decision. (30) In that Decision the Commission concluded that the scheme constituted State aid to airlines in the sense of Article 107(1) TFEU. Nothing in the notification alters that assessment as regards the prolongation of the scheme Compatibility of the aid (31) In the Initial Decision, having assessed the necessity, appropriateness, and proportionality of the scheme as well as its contribution to the objective of common interest and effect on competition on the basis of the Aviation Guidelines the Commission found the scheme compatible with the internal market under Article 107(3)(c) TFEU. (32) The Aviation Guidelines are still in force, and have not been modified since the Commission adopted the Initial Decision, except by the above-mentioned 'Transparency Communication', which has modified the rules on transparency. (33) The prolonged scheme satisfies the transparency requirements as resulting from that amendment as outlined in recital (28). (34) As regards all the other requirements of the Aviation Guidelines concerning start-up aid, for the reasons set out in recitals (44) to (62) of the Initial Decision, the Commission considers that those requirements are fulfilled by the prolonged aid scheme given that the latter is not modified on any aspect except the duration. Therefore, that prolonged scheme is compatible with the internal market based on Article 107(3)(c) TFEU, as implemented by the Aviation Guidelines. 2 3 Guidelines on State aid to airports and airlines (OJ C 99, , p.3). Communication from the Commission amending the Communications from the Commission on EU Guidelines for the application of State aid rules in relation to the rapid deployment of broadband networks, on Guidelines on regional Sate aid for , on State aid for films and other audiovisual works, on Guidelines on State aid to promote risk finance investments and on Guidelines on State aid to airports and airlines, OJ C198/30 of

6 4. DECISION The Commission has accordingly decided to consider the aid to be compatible with the Treaty on the Functioning of the European Union. If this letter contains confidential information which should not be disclosed to third parties, please inform the Commission within fifteen working days of the date of receipt. If the Commission does not receive a reasoned request by that deadline, you will be deemed to agree to the disclosure to third parties and to the publication of the full text of the letter in the authentic language on the Internet site: Your request should be sent by registered letter or fax to: European Commission Directorate-General for Competition State aid Greffe 1049 Brussels Belgium Fax: Stateaidgreffe@ec.europa.eu Yours faithfully For the Commission Margrethe VESTAGER Member of the Commission 6