• it holds an 80 % share in SNCM (the remaining 20 % being owned by SNCF, held by the French State),

• it is the guarantor of social security obligations (including pensions and health insurance funds) for the personnel of its former subsidiary CGM16,

• it has assumed responsibility for a leasing agreement to finance a building which at the time was concluded by CGM.

• between Marseilles and various ports on Corsica: Bastia and Ajaccio (daily, both ways), Porto-Vecchio, Balagna and Propriano (three times a week, including CMN's round trips) with additional crossings during the peak period,

• between Nice and Bastia: SNCM runs continuous services during the low season (two or three return trips each week), with more frequent services from the end of March to October,

• between Marseilles and Sardinia (Porto Torres),

• between Bastia and Sardinia (Porto Torres) with one of its own ships and a ship of the Compagnie Maritime de Navigation (CMN),

• between Marseilles and Tunis: at least one round trip a week with one of its ships,

• between Marseilles and Algiers: several times a week in the high season with the Île de Beauté.

1. (a)

   five car ferries:

   • the Napoléon Bonaparte (capacity 2 150 passengers and 708 cars, power 43 MW, speed 23,8 knots), large luxury car ferry,

   • the new Danielle Casanova, delivered in May 2002 (capacity 2 204 passengers and 700 cars, power 37,8 MW, speed 23,8 knots), also a large luxury car ferry,

   • the Île de Beauté (capacity 1 554 passengers and 520 cars, power 37,8 MW, speed 21,5 knots), taken into service in 1979 and rebuilt in 1989/1990,

   • the Méditerranée (capacity 2 254 passengers and 800 cars, power 35,8 MW, speed 24,0 knots),

   • the Corse (capacity 2 150 passengers and 600 cars, power 27,56 MW, speed 23,5 knots);

2. (b)

   four passenger cargo vessels (freight and passengers):

   • the Paglia Orba (capacity 500 passengers, 2 000 linear metres for freight and 120 cars, power 19,7 MW, speed 19 knots),

   • the Monte d'Oro (capacity 508 passengers, 1 615 metres for freight and 130 cars, power 14,8 MW, speed 19,5 knots),

   • the Monte Cinto (capacity 111 passengers, 1 200 metres for freight, power 8,8 MW, speed 18,0 knots),

   • since May 2003, the Pascal Paoli (capacity 594 passengers, 2 300 metres for freight and 130 cars, power 37,8 MW, speed 23 knots);

3. (c)

   two high-speed vessels operating mainly from Nice:

   • the Liamone (capacity 1 116 passengers and 250 cars, power 65,0 MW, speed 42 knots) which also operates crossings from Toulon,

   • the Aliso (capacity 530 passengers and 148 cars, power 26,0 MW, speed 37 knots).

In 2002 the fleet serving the Maghreb consisted of the car ferry Méditerranée, since 24 June 2002, which will be used between Marseilles and Tunis. The entry into service of this vessel marks a qualitative and quantitative improvement of shipping services for the Tunisian capital. This comfortable and fast ship has a total capacity of 2 250 passengers and 760 cars (compared with 1 600 passengers and 500 cars on the car ferry Liberté). It represents a significant increase in the number of places available for passengers while at the same time offering space for freight transport, a market which is likewise growing considerably.

The SNCM has a non-majority share in CMN, which operates three passenger cargo ships between Corsica and Marseilles, namely the Girolata, the Kalliste and the Scandola, under a public service delegation contract. It also serves Sardinia (Porto Torres) from Marseilles and Propriano.

CMN, set up in 1931, remained a family shipping line until the end of the 1970s when the Compagnie Générale Transatlantique acquired a 49 % share to enable a branch of the founding family to withdraw. In the meantime, CGM has taken over this share. Neither of these two large companies has intervened in the management of CMN which has remained fully in the hands of the Rousset and Rastit families.

Since 1956, CMN has through an agreement been linked with the Compagnie Générale Transatlantique, SNCM's predecessor for services to Corsica. In 1976, CMN was granted a concession for services to Corsica only for freight while SNCM obtained a concession for the carriage of freight and passengers to Corsica. From 1980, CMN has, through delegation from SNCM, also carried passengers after purchasing passenger cargo ships. As a quid pro quo, SNCM was CMN's general agent for passenger transport.

In 1992, CGM, faced with substantial cashflow difficulties, tried unsuccessfully to sell its share in CMN to a third party. As its attempt was not successful, CGM asked SNCM, which was its subsidiary until 1992, to take over the share it held in CMN. Two-tier shareholding was created in order to shift the majority interest to SNCM while enabling private shareholders to retain effective control of CMN through two holdings. The Rousset and Rastit families seized this opportunity to reduce their share for the benefit of the Société de Travaux Industriels et Maritimes d'Orbigny (STIM d'Orbigny) which was subsequently incorporated in the Stef-TFE group. The merger between CGM and SNCM could have been contemplated at the time because of the very strong links between the two companies, but the retention of private investors among CMN's shareholders and their wish to retain control of this company no doubt put a brake on moves towards a merger between the two companies.

• 45 % in CMP, the main shareholder (55 %) in CMN,

• 100 % in Comptoirs du Sud, which runs shops on board SNCM's ships,

• 50 % in Société civile immobilière Schuman (non-movable assets sold off or being sold off),

• 100 % in Société Méditerranéenne d'Investissements et de Participations (SMIP), whose only asset is the ship Southern Trader which operates under time charter.

Sud-Cargos is a French goods transport shipping company which is based in Marseilles and specialises in running services to the Maghreb. It is an equal subsidiary of two large transport groups, SNCM and Delmas. In 2001 it operated eight roll-on roll-off cargo vessels and container ships and had a EUR 67,3 million turnover, carrying 90 000 tonnes, 38 000 TEU and 18 000 trailers. Together with its subsidiaries, it has about 100 employees.

• proximity to customers by having their own facilities in the main ports of the Mediterranean,

• versatility, with a fleet of diversified ships carrying all types of goods,

• a global network with containers available in all commercial areas worldwide,

• overland transport and transhipment facilities to transport, overland or by sea, containers from anywhere in the world to the main French (Marseilles), Italian (Genoa) and Spanish (Valencia and Barcelona) loading ports,

• up-to-date cargo information.

The Société Aubagnaise de Restauration et d'Approvisionnement (SARA) supplies SNCM's ships. In 2002, its turnover was EUR 8,58 million, entirely with SNCM, making a EUR 0,19 million profit.

The Ferrytour partnership is a tour operator that is 100 %-owned by SNCM. Its turnover in 2002 was EUR 11,2 million making a very modest profit of EUR 0,21 million. It organises trips by sea to Corsica, Sardinia and Tunisia but also flights to many destinations. In addition to its main line of business, it also organises mini-cruises and offers business travel services.

Comptoirs du Sud, a subsidiary set up in 1996 which is 100 %-owned by SNCM, manages all shops onboard its ships. The company has a turnover which fluctuates between EUR 2 and 4 million, with a net business result of between EUR 0,08 and 0,12 million. Over 72 % of sales are made on Maghreb routes.

Société Transmondiale Mer Air Terre Voyages (Sotramat), a 100 % subsidiary of SNCM, are travel agents managing 17 agencies throughout France. In 2001 they sold a total of EUR 42,53 million in services, of which 40 % in SNCM tickets, representing 8,5 % of SNCM's sales. Sotramat made a EUR 0,58 million profit, with EUR 3,80 million in commission.

Air travel makes up 43 % of overall passenger transport in 2001 (with about 2,4 million out of 6 million crossings in each direction). Transport by sea has in recent years shown an upward trend thanks to the improved supply of maritime transport services.

• highly seasonal traffic: the months of July and August have traditionally accounted for 50 % of annual traffic. There are also strong fluctuations during school holiday periods and particular weekends. The seasonal variation is accentuated by asymmetry of traffic during peak periods between crossings in both directions at the beginning and the end of the week,

• a supply which for structural reasons has to exceed demand (occupancy which in terms of monthly average fluctuates from 20 % in winter — with 5 to 10 % in slack periods — but peaks of 100 % in summer and particular holiday weekends),

• SNCM's decline on the sea transport services market between Corsica and mainland Europe: 46 % market share in terms of number of passengers in 2001, decreasing in relation to its main competitor, Corsica Ferries, which has a 44 % share, the rest of the market being shared between Moby Lines (5 %), CMN (3 %) and Happy Lines (2 %),

• a slight 2,4 % increase a year, but sea links are becoming steadily more important compared with air traffic,

• structurally low occupancy averaged over a year: about 40 % for SNCM, 33 % for Corsica Ferries, but 66 % for CMN which in the period 1999-2001 only operated passenger cargo ships which by definition have a higher occupancy rate for passengers. The average occupancy rate of ships has apparently always been low on account of the characteristic features of this market, even before Corsica Ferries started operating services between Corsica and mainland France, as shown in table 1.

SNCM's main competitor in passenger transport to Corsica is Corsica Ferries, which operates links to Corsica from Toulon and Nice in France and from Savona and Livorno in Italy. Its market share has steadily risen, reaching 44 % in 2001, a considerable increase compared with 2000 when it was still only 36 %. This increase was connected with the fact that two high-speed ferries entered service on the Toulon-Corsica lines in 2001, increasing traffic from mainland France without any reduction in transport services run by this company from Italy.

• CMN, which is a competitor but also a partner associated with SNCM under the public service concession. CMN operates links only from Marseilles. Its market share is 3 %,

• Moby Lines operates from Genoa, Livorno and Piombino. Its market share in sailings to Corsica dropped from 8 % in 2000 to 5 % in 2001 due to its ageing fleet,

• Happy Lines operates a car ferry with 1 100 places from Genoa, La Spezia and Livorno. Its market share is 2 %,

• TRIS, with two car ferries with 800 and 1 300 places, and Linee Lauro, with a car ferry with 670 places, focus on crossings to Sardinia and operate occasional links to Corsica. Their market shares are negligible.

CMN, for freight transport, and its Italian competitors, to optimise their services, operate triangular links between the European mainland, Corsica and Sardinia. However, the number of passengers carried on these sailings is very marginal between Corsica and Sardinia.

SNCM and CMN have a de facto monopoly for general cargo transport (unaccompanied). Under the public service delegation contract, the two firms operate frequent sailings from Marseilles to all Corsican ports.

SNCM's market share in passenger transport to Corsica was 46 % in 2001 as against 52 % in 2000. This market share steadily diminished in the 1990s to the benefit of Corsica Ferries, thanks to the entry into service of two mega-express ships of Corsica Ferries.

According to the market survey, no operator other than SNCM and CMN is capable, with regard to the carriage of unaccompanied general cargo, to meet the public service constraints and operate profitably outside the concession already allocated. The market survey considers that the SNCM-CMN partnership should therefore be continued in SNCM's long-term interest.

According to the market survey, continuation of the public service contract will enable SNCM and CMN, with regard to general cargo transport from Marseilles to Corsica, to capture most of the growth in traffic: […] linear metres in 2006 as against 1 490 000 in 2000. Profitability of this activity will be ensured through efficient management of a range of ferries and passenger cargo ships operated by the two companies, with overall optimisation of passenger and freight transport. There is no price competition as prices are controlled in the framework of the public service concession.

The market survey estimates that, depending on the strength of Moby Lines' commercial policy on links between Italy and Corsica, Italy's share in overall transport will drop from […] % in 2001 to […] % in 2006 if Moby Lines is very active or from […] % to […] % if it makes no investment. SNCM will be in the top range with more frequent crossings and more varied destinations (secondary Corsican ports) than Corsica Ferries. SNCM should set itself an objective of retaining its market share of at least […] %. Balance between supply and demand will improve for SNCM, with one ferry withdrawn in 2002, a new passenger cargo ship and modernisation of two others. For Corsica Ferries, the balance between supply and demand will be brought about by achieving ambitious forecasts of growth in activity in double figures which, according to the market survey, will a posteriori justify current supply. In price terms, the continuation of fierce competition from Corsica Ferries will oblige SNCM to improve its productivity.

The market survey indicates that air transport accounts for 92 % of overall passenger transport between the EU and Algeria. Unlike for Corsica, there is no specific growth in maritime passenger transport to Algeria.

It is not likely that any new competitors will arrive on the market in the short term. Even though SNCM continues to be a general agent for ENTMV in its country of origin and vice versa, ENTMV has developed its own network in France (and in other European countries) while SNCM is developing its network in Algeria. […]

In the light of economic and political trends in Algeria, this market should expand considerably: in 2006 maritime passenger transport should be between […] and […] passengers. However, according to the market survey ENTMV's fleet is old and not certain to be renewed. According to the authors of the market survey, the order of two new ships by ENTMV seems to have run into financial difficulties.

In sailings to the Maghreb, SNCM strengthened its position with the entry into service in 2002 of the ferry Île de Beauté, withdrawn from the link with Corsica, which will do well in competition with ENTMV's ageing fleet. According to the market survey, the success of this link will be ensured by controlling operating costs which should enable SNCM to offer attractive fares to recover a part of the market. The market survey stresses the importance for SNCM of getting involved in operating services to Oran, a market segment in which it does not currently play a role. According to the survey, SNCM should be able to recover its initial market share of 35 % by 2006.

The overall market share of aviation is 77 %. This share, distinctly lower than that for Algeria, is connected with the importance of short-haul sea transport, virtually road transport, across the Strait of Gibraltar via southern Spain.

This market is much more competitive, highly fragmented, with a 5 % growth rate a year for services between Morocco and Europe (95 % to Spain) with the following main market shares: Comarit 23 %, Transmediterranea 22 %, Comanav 20 %, Euroferrys 18 % and Ferrimaroc 17 %. Many Moroccan and Spanish companies are involved in this short-distance shipping link: Comanav, Comarit, Euroferrys, Ferry Maroc, Limadet and Transméditeranea. None of them have a market share of more than 23 %. Competition is fierce, in particular in terms of fares, with old ships already amortised.

The only long-distance service is operated by Comanav, from Sète to Tangiers or Nador. Accordingly, it has 100 % of the market on these links, which however represent only 5 % of maritime transport overall.

As emphasised in the market survey, SNCM is currently not involved in maritime passenger transport to Morocco. It seems important for SNCM to gain a foothold in the long-distance traffic market between France and Morocco. By seeking to capture a small part of this virtual road transport (which currently passes through southern Spain) rather than taking passengers away from Comanav, SNCM could help to double passenger transport by sea from France, which would nevertheless remain marginal compared with sailings across the Strait of Gibraltar.

Aviation retains a dominant position, with 96 % of the passenger transport market. The relative importance of tourist traffic to Tunisia explains this share which is even higher than for Algeria as tourists almost exclusively go there by plane.

Only two Member States run shipping services to Tunisia: France, from Marseilles and Toulon, with 47 %, and Italy from Livorno and Genoa with 39 % and from Sicily with 14 %.

The principal actor on this market which is growing by 7 % a year is the Compagnie Tunisienne de Navigation (CTN) with a 58 % market share, followed by SNCM with 21 %. CTN has a relatively modern fleet and makes optimal use of it on links from France and Italy. The other competitors are: Linee Lauro, Tirrenia and Ustica Lines, the last two operating sailings from Sicily only.

Competition on the sea links varies according to Member State. CTN's fares from Italy are 30 % lower than from France, although crossing time is the same. However, CTN and SNCM have identical fares from France.

SNCM had a 21 % market share in 2000 in passenger transport by sea to Tunisia. This share has gone down, with the transport increase catered for by CTN. On links between France and Tunisia alone, SNCM's market share is 50 %. The best way for SNCM to increase its overall market share is to start running services to Tunisia from Italy, provided that its fares are competitive.

According to the market survey, sea transport to Tunisia will continue to grow, reaching over […] passengers in 2006. SNCM's services from Italy will enable it to also increase its market share: the market survey considers a […] % market share a realistic target for SNCM for 2006.

• accumulated debts from 1991 to 2001, totalling EUR 41,7 million43,
• a drop in resources through exceptional depreciation in the same period, totalling EUR 24 million44,

• appreciation of disposal generated during restructuring, namely EUR 21 million, deducted from the financing requirement,

• the cumulative effect of restructuring costs, totalling EUR 46,2 million, broken down as follows:

  • the social plan of the restructuring programme: EUR 20,4 million,

  • laying-up costs of vessels being sold off: EUR 1,8 million,

  • costs of redeploying activities towards the Maghreb: EUR 9 million,

  • depreciation of the high-speed vessel Liamone: EUR 15 million.

The second method consists of determining which would be the amount of capital required by the banks for the entire fleet, given that for financing of the purchase of a ship the banks in general require capital corresponding to 20 to 25 % of the ship's value. On the basis of the total sum of EUR 843 million representing the past cost of ships acquired for the fleet, the French authorities have calculated a capital requirement of between EUR 157 and 196 million. After deducting existing capital at the end of 2001, this method leads to a recapitalisation requirement of EUR 101 to 140 million.

This last method consists of calculating the financing requirement on the basis of the average capital/debt ratio recorded in 2000 for five European shipping companies. Even though the balance sheets of these companies show substantial disparities, the average adopted by the French authorities is 79 %. The French authorities maintain that the financial model leads to an average of 77 % for the period 2002 to 2007, before dividend, with capital reaching EUR 169 million in 2007. The French authorities point out that it is in fact such a level of capital that should be attained through this EUR 76 million recapitalisation in 2002 and, of course, the success of the measures provided for in the restructuring plan.

In their letter of 3 July 2002, the French authorities added two new firms to the panel of shipping companies, as a result of which the average capital/debt ratio was 83 % instead of 79 %.

Since the figure of EUR 76 million is the lowest produced by the three methods, it was adopted by the French authorities in determining the amount of recapitalisation.

For services to Corsica, this scenario assumes an improvement of the island's attraction through investment and communication policies. In this way, Corsica would remain a favourite tourist destination. The shipping component increases compared with air transport (longer stay of families with car) and French sea transport benefits from the frequency and variety of services on offer.

The result is very good price and traffic volume performance generating higher net revenue than expected. However, the increase on the Nice-Corsica link is limited by the reduction of capacity undertaken by SNCM.

For services to the Maghreb, this scenario envisages no major disruptions of the growth trend in Maghreb markets. The qualitative and quantitative improvement of supply combined with a more expanding market enables SNCM to expect higher net revenue than forecast in the restructuring plan, mainly during the high season. Here, too, the capacity on offer during peak periods limits possibilities for growth.

• the current result which on average rises from EUR […] million to EUR […] million,

• the company's capital at the end of the period in question, rising from EUR […] million to EUR […] million.

This scenario assumes a downturn in the economic and social situation in France. Trade with Corsica and the Maghreb stagnates. Traffic is lower than expected.

• in the current results, on average dropping from EUR […] million to EUR […] million,

• in the company's capital at the end of the financial year, dropping from EUR […] million to EUR […] million. In this scenario, SNCM replaces the Ile de Beauté by a second-hand vessel and does not replace the Corse, lengthening the period in which it remains in service.

• on the one hand, the assumptions regarding traffic make it possible to meet the objectives of the restructuring plan without altering either the programme of services or the fleet used. A greater decrease or increase in traffic would exceed these limits and necessitate other combinations of services and consequently a different composition of the fleet. If this led, in particular, to economic disruption of the public service delegation, the safeguard clause laid down in the public service delegation contract might be activated, leading to a redefinition of the corresponding service;

• on the other hand, services to Corsica and to the Maghreb follow different criteria. Their trends may be convergent or divergent. For instance, the Corsican market may depend on the situation on the island. Serious disturbances there may immediately impact on the growth of trade with Algeria. The Tunisian market seems to be more stable but competition there is fierce. Overall, it is not very likely that all these markets will show a trend in the same direction. Accordingly, the assumptions on the whole seem to present a situation that is quite representative of possible developments.

• increased use in June and September of the small high-speed vessel replacing the Liamone: improvement of result by EUR […] million,

• reduction in the number of vessels operated during particular weeks in winter: improvement of result by EUR […] million,

• on crossings to Algeria, reduction of the number of trips during the low season (one every two weeks): improvement of result by EUR […] million.

For the company's traditional activity on the line between Marseilles (and, for the record, Toulon) and Corsica, expected turnover was EUR 84 million in 2002 and should vary between EUR […] and […] million during the following years. It should be noted that the overall turnover of services to Corsica is expected to drop by EUR 9 million, i.e. 8 %, in 2002 compared with 2001. The 2002 accounts confirm this expected drop (EUR 10 million less in passenger revenue). As a result, SNCM's market share diminishes by 4 percentage points (from 25,9 % to 21,8 %) from 2001 to 2002 to the benefit of its competitors (5,6 point increase to 16,8 %).

For services from Marseilles, which is now the only one covered by the public service delegation, the expected subsidy should have been limited to about EUR 69 million in 2002, dropping to EUR 61-63 million during the period covered by the plan, representing a notable decrease compared with the EUR 87 million obtained in 2001. However, the current result of the network dedicated to public service, which was negative in 2001 and 2002, should rise to EUR […] million in 2003, then to about EUR […] million in 2004 to 2005 and finally EUR […] million in 2006.

In 2002, the current result attained by the company would reportedly be − EUR 5,8 million, in line with that of 2001 but lower than the figure indicated in the restructuring plan. Apart from variations in some headings of the profit and loss account, this current result could be explained from the absence of a refund of the maritime professional tax (EUR 2,4 million), for which there will be an abatement at source in 2003, and the partial refund of employers' Assedic contributions (unemployment insurance contributions) and family allowances, i.e. a EUR 3,5 million shortfall.

According to the French authorities, the EUR 76 million cash injection and the turnaround to profitability, expected from 2003, should make it possible to raise the company's capital from its current level of about EUR 30 million to EUR 120 million in the short term (2003) and then to EUR […] million at the end of the period covered by the plan (2006 to 2007). This will lead to a reduction of indebtedness from its current level (EUR 145 million) to levels of EUR […] million from 2003 to 2005. In the last years of the plan, an increase in indebtedness is forecast by the company because of the renewal (fully owned) of one or two vessels.

The promotional fares of SNCM and Corsica Ferries vary according to the yield management method. Because of the relative lack of transparency of fares charging by computerised booking systems, the French authorities cannot provide the Commission with the number of places benefiting from Corsica Ferries' special fares. Finally, the French authorities wish to draw attention to the fact that SNCM does not offer the ‘Plein Soleil’ formula on all its crossings whereas Corsica Ferries does offer this type of product on all its sailings.

The French authorities note that SNCM's scale of fares for Nice-Corsica is systematically higher than or equal to that of Corsica Ferries.

As regards the ‘colours’ of fares (see table 10), it is correct that SNCM has lengthened the blue period between April and September, partly in order to close the fares gap separating SNCM from Corsica Ferries. However, it applies only to sailings in the less busy direction.

• fluctuation of revenue within a range of 2 % above or below the basic data do not give rise to any adjustment of compensation,

• adjustment of compensation for fluctuations in revenue outside this range is only partial,

• overall, adjustments are restricted to 1,66 % of financial compensation for the whole term of the contract.

The French authorities note that the public service contract in no way guarantees operating profits; on the contrary, the contract provides for a maximum level of capital yield. The sole objective of the public service grant is in fact to offset the costs resulting from executing the public service task. Consequently, the grant cannot be construed as a ‘cashflow guarantee’.

In their comments, the French authorities question the well-foundedness of Corsica Ferries' statement that CMN is among Europe's most profitable shipping companies. They argue that there is no justification for this claim today: the average net result of this company during the five financial years 1997/2001 is EUR 1,27 million for an average turnover prior to compensation of EUR 36,4 million. Moreover, the company's performance is largely linked with the Marseilles/Corsica public service delegation contract in which, as co-contractor of the public service delegation, it complements SNCM's main contribution with three vessels.

According to the French authorities, the decision of SNCM and CMN to enter into a joint venture in which they are jointly and not severally responsible has in no way ‘been rendered obligatory by the overall character of the consultation’, contrary to Stef-TFE's observations. According to the French authorities, the tender issued by the territorial collectivity of Corsica fully permitted bids per shipping line or groups of lines. It was therefore legitimate for SNCM, and for CMN, to submit a bid for parts of this tender, if necessary by looking for appropriate partnerships.

The decision to set up a joint SNCM-CMN venture is the result of an analysis made by the two companies which showed that bidding in this form, in this traditional and natural partnership, gave them the best chances, in particular in terms of competitiveness, to win the tender in view of the fact that Corsica Ferries had for months made it clear that it would submit a bid and in view of the possibility of other European operators doing so too.

CMN's entry into this joint venture therefore resulted from a well-considered decision on its part based on an evaluation of its own interest and not on an obligation arising out of the tender as such.

The French authorities explain that, contrary to Stef-TFE's observations, the two companies, SNCM and CMN, are neither independent nor in direct competition. Such a situation would be in conflict with the very principle of the single public service delegation contract to which they are co-signatories.

The French authorities indicate that this is not simply a question of ‘coordinating timetables’ but that there is a single timetable jointly committing the two companies on services to Ajaccio and Bastia throughout the year and in particular periods also on services to secondary ports. For instance, the ‘basic’ service to Bastia is alternately operated every two days by each of the two companies.

• SNCM has gone along with CMN's proposal to fix, within the limits permitted by the public service contract, the level of freight charges,

• CMN has gone along with SNCM's proposal to fix, within the limits permitted by the public service contract, the level of passenger fares.

This procedure has led to the establishment of a single scale of fares for the two companies. The special fares, offering reductions on basic passenger fares ranging from 20 to 50 %, are likewise jointly managed. For this purpose, CMN uses SNCM's ‘package’ products and its computerised booking system. Finally, CMN uses SNCM's embarkation checking system for passenger handling in Corsican ports and in Marseilles.

On the subject of pooling resources, the French authorities emphasise that the two companies frequently pool their efforts in their relations with suppliers. For instance, work on enlarging and modernising two vessels, SNCM's Paglia Orba and the CMN's Kalliste, was carried out in 2002 by the same shipyard, producing significant savings for both companies. These vessels had been built according to a single design but because of different timetables and workloads the companies had commissioned the vessels to two different shipyards.

As noted by Stef-TFE, CMN's share of the passenger market increased substantially in 2002. Without disputing the quality of the services provided and efforts made by CMN, the French authorities consider that this increase occurred purely as a result of the contents of the new public service contract and not of any commercial conquest made by CMN on other operators. The increased use of cargo passenger ships with a capacity of 500 passengers and the reduced use of car ferries, both resulting from the public service obligations, have led to a redistribution of the places offered, which has been favourable to CMN. These data have obviously been incorporated in the joint bid submitted by the two companies.

• SNCM's cash position in 2002 in no way enabled it to contribute to covering CMN's cash needs77,

• SNCM already shared in the financing of specific cash needs of CMN in 1999, at the time covering 66 % of its needs, alongside Stef-TFE,

• SNCM did not receive from CMN a request for a counter-guarantee for the security paid under the tender,

• SNCM did not object to CMN's plan to offer 5 % of its shares to its employees. At CMN's extraordinary general meeting on 27 June 2000, SNCM first of all gave its backing to a joint fund for worker participation to receive shares for employees as a new shareholder in CMN (even though the percentage of voting rights it held would have enabled it to oppose these plans). In a note to its Board, CMN's management subsequently proposed to transfer 2,25 % of the shares it held in SNCM for the benefit of CMN's employees. The French authorities indicate that they decided to postpone this operation when they heard that Stef-TFE was preparing to contact the Commission on this subject as part of the formal investigation procedure.

The French authorities conclude that the description which Stef-TFE has given of relations between SNCM and CMN in executing the public service contract is not consistent with reality.

The French authorities state that the idea of a disinvolvement between the two companies lacks all industrial logic. The companies pursue the same activity, with identical tools, under the terms of a single public service contract. Moreover, the potential gain from closer cooperation between the two companies may be estimated to be within a range from EUR […] to EUR […] million per year.

The question of relations between SNCM and CMN should also be examined from a strategic angle. The Commission has considered SNCM's position after 2006 when the current public service contract comes to an end. SNCM's position will depend partly on the level of Corsica-Marseilles public service for which it may then be responsible.

The French authorities consider that the maintenance of a strong partnership between SNCM and CMN give them the best chances for success in being allocated public service activities from 2007. Such a partnership is an important factor for SNCM's viability and its maintenance seems essential.

An examination of the accounts of the Stef-TFE group (in which CMN is consolidated under the equity method, given the 49 % share of Stef-TFE in CMP) shows that a […] hypothesis cannot be excluded.

In the recomposition of CMN's capital, SNCM made the main financial effort. The original approach was intended to establish an industrially effective SNCM-CMN configuration. By taking up the majority share, SNCM decided to occupy a position as a solid partner of CMN. For reasons of public image connected with the political context at the time, the SNCM majority shareholding was redistributed into two minority shareholdings (twice 45 %) at two levels of the adopted structure.

To this end, SNCM not only subscribed to CMP's capital and that of the Compagnie Méridionale Financière (CMF), set up to take full control of CMN, but also gave a 100 % guarantee for the bank loan which CMF had had to take up to complete the financing of the purchase.

SNCM has always taken an interest in CMN's development and has always been involved in it, even to increase passenger capacity on CMN's passenger cargo vessels to the detriment of SNCM's own market share with a view to enhancing the quality of the overall service supplied by the two companies.

CMN's interesting position today, with regard to passengers and freight, has been largely established with the aid of SNCM's financial, strategic, legal (establishment of the joint venture) and functional (providing a sales network) resources. On the other hand, Stef-TFE, with an initial minimum capital input involving little risk, now controls the management of a company that is well established in its sector.

The French authorities have pointed out that SNCM's personnel is well informed about these matters and are fully aware of what is at stake. This convergence of views on a issue that is of strategic importance to SNCM will enhance the quality of social dialogue within the company and thereby strengthen its viability.

An examination of the financial aspects should not be confined to evaluating the cash injection resulting from the transfer but should also take into account the revenue which SNCM is likely to derive from its share in CMN.

CMN is a company with homogeneous and regular activities. It benefits from a public service compensation which gives it a good return on investment. SNCM's share in CMN should start having a positive impact on its social accounts. As a result of the clear improvement of CMN's financial position, SNCM could draw dividends from CMN from 2003, which could rapidly become substantial from the 2004 financial year and exceed EUR […] million, even if account is taken of a weak distribution ratio of 30 %.

Subsidiarily, it should be noted that a discontinuation of the partnership would deprive SNCM of its activity as CMN's general agent (7,5 % of revenue and an average cash effect amounting to EUR 2 million).

In conclusion, France's position is that SNCM's participation in CMN is strongly strategic in nature. In its opinion, the transfer of these shares would not only make no sense industrially but would also be tantamount to a major strategic error.

On the basis of information supplied by Stef-TFE, the Commission suspected that there existed a shareholders' pact between Stef-TFE and SNCM for the control of CMN. Accordingly, by letter of 16 January 2003 the Commission asked the French authorities if there existed such a pact for CMP's shares, the control holding of CMN, and also, if the answer was in the affirmative, whether this shareholders' pact could be transmitted to it. In their fax dated 25 February 2003, the French authorities confirmed that such a document existed and transmitted a copy to the Commission, emphasising its confidential nature. This shareholders' pact, concluded on 7 March 1992 between the chairman of SNCM and the chairman of the Compagnie de Navigation d'Orbigny (CNO) as part of the implementation in 1992 of its shareholding structure, covers mutual commitments between SNCM and CMN and industrial cooperation between the two groups.

The French authorities also point out that CNO, which has become Société de Travaux Industriels et Maritimes d'Orbigny (STIM d'Orbigny), has no means of acquiring SNCM's shares in CMN without the latter's explicit agreement, […].

With regard to Stef-TFE chairman's suggestion to buy from SNCM the shares it holds in CMN, the French authorities have stated that he had tried to benefit from SNCM's current situation in order to obtain a transfer of SNCM's shares in CMN, which is in no case provided for in the provisions of the shareholders' pact.

The French authorities have recalled that it is through CGTH, a holding company which is 100 % owned, that SNCM holds shares in CMN. CGTH owns 45 % of CMP, which is the main shareholder (55 %) in CMN.

The French authorities have specified the exact composition of CMN's current board of management, whose composition is based on a two-thirds/one-third distribution of the number of managers, and this has been the case since the redistribution of CMN's shares in 1992. The board consists of five managers from Stef-TFE, one representative of the Rastit family, the chairman of CGMF, the chairman of SNCM and a retired officer of CMN. The management board is chaired by one of the managers from Stef-TFE.

In their reply of 25 February 2003, the French authorities indicated that SNCM had voluntarily cooperated in offering CMN's shares to its employees and also that it had wished to postpone the implementation of its proposals as soon as it had learned about the Stef-TFE group's intervention in the investigation procedure initiated against it as this intervention violated the basic principles of the shareholders' pact of 7 March 1992.

On this point, the French authorities replied that the upgrading of CMN was being studied by SNCM as part of the decision to offer CMN's shares to its employees.

The French authorities have drawn the Commission's attention to the fact that in his proposal to the Commission the chairman of Stef-TFE had given an estimate of the share held by SNCM whereas at the meeting of CMP's board on 3 February 2003 the chairman of CMP, who is also chairman of CMN, informed the managers of his decision to transfer 5 % of CMN's shares to a common investment fund reserved to employees at a price upgrading CMN to EUR 24 million.

The French authorities have indicated that staff expenditure remained stable between 1998 and 2002, going from EUR 111,1 million to EUR 114,4 million. However, they point out that about a third of this amount relates to wages for onshore personnel. This proportion corresponds to the staff ratio (between 764 and 824 onshore as against 1 519 to 1 599 onboard personnel for the years from 1999 to 2002).

The figures show that the wage bill has remained stable in recent years. However, the ratio of wages in relation to turnover seems significant, which is no doubt proof that the other shipping companies have outsourced more secondary activities than SNCM, reflecting a management choice connected with the company's traditional involvement in public services that the Commission does not feel is open to criticism as a matter of principle.

• losses increased by − EUR 6,2 million in 2000 to − EUR 40,4 million in 2001. Between 2001 and 2002, the current result rose from − EUR 5,1 million in 2001 to − EUR 5,8 million in 2002, with net losses in 2002 reduced only through the sale of a number of ships,

• passenger turnover between 2000 and 2001 diminished by EUR 2,3 million while the passenger transport market between Corsica and mainland France rose by nearly 17 %,

• net financial debt, excluding leases, went from EUR 135,8 million in 2000 to EUR 144,8 million in 2002,

• financial charges (interest and similar charges) went from EUR 7,0 million in 2000 to EUR 9,268 million,

• capital diminished by EUR 36 million between 2000 and 2001.

• the company's capital remains very weak in relation to the company's size and financing requirement. While it was EUR 29,7 million at the end of 2001, it would be EUR 33,8 million at the end of 2002. This apparent progression does not result from its operational activity as the current 2002 result remains negative as indicated above. Instead, it is connected with the first results of the restructuring plan and the transfers under the plan which have generated exceptional appreciations exceeding EUR 5 million, and with the first year of transfer of the provision allocated in 2001 for the Liamone. It should further be pointed out that of these net figures EUR 60 million originate from the application of exceptional fiscal depreciation115. Accordingly, this part has in the past generated a fiscal advantage which will disappear in the future. It is therefore tantamount to a future tax debt116 which, excluding reportedly deferred depreciation, amounts to EUR 20 million at the end of 2001 and still EUR 16,8 million at the end of 2002. Taking account of these data, net capital will be only about EUR 10 million at the end of 2001 and EUR 17 million at end 2002,

• the EUR 33,8 million capital at end 2002 should be compared with net fixed assets of EUR 285 million at end 2001 and EUR 283 million at end 2002, which means that virtually all of the company's long-term financing is ensured through debts. Financial debts, excluding leasing, accounted for EUR 134,5 million at the end of 2001 and EUR 144,8 million at end 2002. This very fragile financial position prevents the company from finding other resources on the market,

• analysis of the company's internal financing capacity (EUR 29 million in 2001 and EUR 24,7 million in 2002) reveals the same weaknesses: its level hardly covers refund commitments on existing debts (EUR 27,5 million in 2001 and EUR 21,3 million in 2002). Internal financing capacity can therefore provide no security to a new lender.

Moreover, the French authorities have confirmed to the Commission that the banks are now refusing to lend money to the company because of its indebtedness, even though SNCM has proposed to put up its newest vessels, unencumbered by mortgage or other servitude, as a security for a bank loan.

The current public service delegation contract in no way changes this analysis. While the contract will certainly enable SNCM, in combination with the success of the restructuring plan, to attain positive operating results, the fact remains that its acute lack of capital, its growing indebtedness and the cost of operational measures under the restructuring plan should after a certain lapse of time lead the company to cease payment.

The Commission's conclusion is that SNCM is certainly a firm in difficulty as defined in the guidelines.

• the panel of five companies used by the French authorities is not sufficiently representative of the maritime cabotage sector,

• the 79 % capital/debt ratio produced by this panel of companies is in fact in no way a reliable indicator of a company's health,

• the French authorities have not explained what exactly is covered by the amount of financial debts of these five companies and therefore cannot guarantee that these data are consistent with the amount of SNCM's indebtedness as indicated in the restructuring plan,

• the French authorities have not shown that the 79 % capital/debt ratio emerging from this panel of companies is properly taken into account for the period 2002 to 2007 in the financial model included in the restructuring plan.

With regard to the other approaches proposed by France to show that the figure of EUR 76 million is not too high, the Commission questions the relevance of the method used.

The Commission takes the view that the primary aim of restructuring aid should not be to increase the company's capital (simple financial restructuring) but to help the company to switch from its monopoly position under the 1976 agreement to a competitive position. This is why the Commission is reticent to base the level of aid on the method adopted by the French authorities, as it is difficult to specify the appropriate level for SNCM's capital. The Commission wishes to point out that by adding or removing certain companies from the panel chosen by the French authorities, the average capital/debt ratio may vary significantly.

• to authorise the financing from public funds only the costs inherent in operational measures under the restructuring plan,

• to draw a definitive line under the consequences of the inadequacy of financial compensation under the said agreements in view of the operating expenses and onshore costs recorded for this period on the sea links covered by the public service obligations.

As has already been noted, the financial undercompensation for public service in the period 1991 to 2001 amounted to EUR 53,48 million.

Finally, the Commission considers that the aid proposed does not exceed what is necessary to restore viability. On the basis of the financial situation as presented at the end of 2002, as detailed above, a EUR 76 million cash injection would raise the company's net position, all other things remaining equal, from about − EUR 26,5 million to + EUR 49,5 million. Similarly, the company's financial debt would change from EUR 144,8 million (situation at end 2002) − EUR 76 million (cash injection) + EUR 31,2 million (outflow for operational restructuring measures, excluding exceptional depreciation of the Liamone), to about EUR 100 million. Consequently, it would remain equal to double the net position, leading the Commission to conclude that this obviates the risk of surplus cash within the meaning of the guidelines. To the extent that there is such a risk, the conditions laid down in the present decision are intended to prevent any distortion of competition. Even if account is taken of the regulated provisions of EUR 60 million discussed above, of which the Commission considers that only part of these are company capital, the company's own resources of approximately EUR 110 million would remain counterbalanced by virtually equivalent debts. In the Commission's opinion, the presence of net fixed assets to be financed to the tune of EUR 283 million at the end of 2002 fully justifies this level of capital. A reduction of the aid, e.g. through new mortgage loans taken out by SNCM, would automatically lead to an increase in debt and would, because of disrupting this adequate balance according to the Commission's analysis, leave no scope for the company's financial restructuring.

• Amadeus France, a company developing and marketing a computerised booking system, in which SNCM has a 13 % share138,
• the Compagnie Corse Méditerranée, an airline in which SNCM has a 7 % share139,

• the real estate company Schuman, in which CGTH has a 50 % share,

• Someca,

• SMIP; failing this, SNCM could sell SMIP's sole asset, the Southern Trader 140, and close down this subsidiary.

With regard to all of these holdings, the Commission notes that the French authorities have never in the course of the procedure indicated that they are of strategic importance for SNCM's survival.

The Compagnie Corse Méditerranée (CCM), known under its business name CCM Airlines, is an aviation company operating air services to Corsica. It is a semi-public limited company with a capital of EUR 10 335 520. Its main shareholders are the territorial collectivity of Corsica (60,37 %), Air France (11,95 %), Crédit Agricole (7,55 %), the Caisse des Dépôts et Consignations (4,75 %), SNCM (6,78 %), TAT EA (2,52 %), TAT SA (1,68 %), the Caisse de Développement de la Corse du Sud (1,21 %), the Chambre de Commerce de Haute-Corse (0,84 %). Its board consists of 11 members: the Assembly of Corsica (seven members), Air France (one member), Crédit Agricole (one member), Caisse des Dépôts et Consignations (one member) and SNCM (one member). The Commission takes the view that there is no need for a shipping company such as SNCM to have any holdings in airlines and that SNCM's holding is CCM are not of strategic importance. It should therefore be disposed of as a condition for recapitalisation.

The Schuman company covers various fixed assets. In the Commission's opinion, the holding in this company is not of strategic importance for SNCM's activities and should therefore be sold off.

Someca is specialised in the transport of cement to Corsica on a bulk cargo ship. Bulk transport provides little synergy with ro-ro freight and the small volume of cement transported to Corsica does not justify keeping shares in such a highly specialised subsidiary. Accordingly, the Commission considers that this holding is not of strategic importance to SNCM and that it should therefore be disposed of.

SMIP's sole activity is leasing the Southern Trader. This activity of leasing ships is far removed from SNCM's core activity. It is in no way of strategic importance to the group. SNCM should therefore either dispose of this subsidiary or sell off its sole asset, the Southern Trader, and close down this subsidiary.

The case of CMN is more complex. On the one hand, SNCM and the French authorities maintain that SNCM's holding in CMN is of crucial importance and is therefore of strategic significance to ensure execution of the public service delegation contract. On the other hand, Corsica Ferries and Stef-TFE are of the opinion that this holding is not of strategic importance to SNCM.

The Commission notes that even though SNCM and CMN are both competitors and partners, the two companies participate in carrying out the public service contract.

• a joint computerised booking system not only for Corsica but also for the Marseilles-Sardinia links,

• a joint passenger embarkation control system,

• coordination of timetables,

• CMN access to SNCM's network of agencies in Europe.

The Commission notes that cooperation between the two companies goes back a long way, to 1954. The Commission also notes that CMN's fleet clearly complements SNCM's in meeting the requirements of services to Corsica. The Commission also notes that the shareholders' pact binding the two companies provides for cooperation between them.

The Commission concludes from the above that SNCM's shareholding in CMN is of crucial importance to SNCM for its long-term development.

Bearing these facts in mind, the Commission does not deem it appropriate to require in this decision that SNCM disposes of its holdings in CMN.

The same applies to the Cofremar company, a joint subsidiary of SNCM and CMN, which compiles statistics on freight transport to Corsica.

The Sud-Cargos company offers major synergies and genuine complementarity with SNCM on services to the Maghreb. Sud-Cargos is a partner of undeniable importance if SNCM is to develop ro-ro transport to the Maghreb. Sud-Cargos also contributes very specific knowledge of the market of services to North Africa. The two companies can draw benefit from pooling particular onshore structures in Marseilles and in the Maghreb to achieve economies of scale. Moreover, SNCM's business structure provides Sud-Cargos with a substantial part of the latter's turnover.

SNCM's other subsidiaries contribute significantly to its activities and can likewise not be severed from the SNCM group. The Commission takes the view that their disposal cannot be contemplated without jeopardising the company's short-term viability because of the essential roles they play within the group.

The Commission wishes, where appropriate, to reduce the amount of aid in order to take account of the proceeds from the disposal of non-strategic holdings. However, it does not have the information necessary to determine the amount that would accrue from the required disposals, although a very rough estimate suggests that it will be around EUR 10 million, excluding the disposals already envisaged under the restructuring plan. The Commission therefore deems it necessary that a part of the aid, of the order of EUR 10 million, be frozen pending clarification of this amount and cannot be granted immediately.

Should it appear that the disposals have generated more than EUR 10 million for the company, the second tranche cannot be granted to SNCM. The Commission has discarded the option of further reducing the amount of the first tranche of aid approved, in order to encourage SNCM to sell off these holdings at the best possible price. However, should the required disposals other than those already provided for in the restructuring plan generate less than EUR 10 million, the remainder will be paid, account being taken of the proceeds from these disposals. The second payment can, where appropriate, be authorised by the Commission only if all other conditions of the present decision are complied with.