Since it had not received notification from the Italian authorities prior to the decision to grant this loan, by letter of 24 April 2008 (D/422119) the Commission asked them to confirm the existence of this loan, to provide any relevant information allowing an assessment of the measure in respect of Articles 87 and 88 of the Treaty, to suspend granting of the loan and to inform the Commission of the measures taken to comply with this obligation in accordance with Article 88(2) of the Treaty.

In that letter, the Commission also reminded the Italian authorities of the requirement on them to notify all plans to grant or alter aid and not to implement any planned measure before a final decision has been reached in the Commission’s investigation procedure.

By letter of 7 May 2008 the Italian authorities asked for an extension to the deadline which they had been given to reply to the Commission’s letter of 24 April 2008. The Commission granted this request by letter of 8 May 2008 (D/423186), asking the Italian authorities to reply by 30 May 2008.

At the same time, the Commission received several complaints, including from various airlines, regarding the granting of the EUR 300 million loan by the Italian Government to Alitalia.

By letter of 12 July 2008 (A/509783) the Italian authorities sent their comments to the Commission. The Commission also received comments from five interested parties. These were sent to the Italian authorities by letter of 3 September 2008 (D/433031). A list of these interested parties is annexed to this Decision.

The Italian authorities have not commented on the comments from the interested parties.

At the meeting on 23 April 2008 the Italian authorities submitted to the Commission the aforementioned Decree-Law No 80, granting a loan of EUR 300 million from the Italian State to Alitalia, a company in which it held a 49,9 % stake.

By letter of 30 May 2008 the Italian authorities informed the Commission that, by means of the aforementioned Decree-Law No 93, the Italian Government had given Alitalia the option of counting the value of the loan as part of its capital, in order to cover its losses (see Article 4(3) of the aforementioned Decree-Law). The intention behind this was to allow the company to maintain the value of its capital, in order to ensure that its losses did not make its share capital and reserves fall below the legal limit, thereby preventing insolvency proceedings (procedura concorsuale), and to ensure that the possibility of privatisation remained open and credible.

The loan repayment terms laid down in Decree-Law No 80 remain applicable in the context of Decree-Law No 93, except for the fact that the interest rate to which the loan is subject has been increased by 1 % (see Article 4(1) and (2) of Decree-Law No 93) and that, in the event of the company being liquidated, the amount in question will be repaid only after all the other creditors have been paid off, jointly and in proportion to the share capital (see Article 4(4) of Decree-Law No 93).

On the subject of whether the measure in question could be regarded as aid, the Commission expressed its doubts as to whether the Italian State, in granting Alitalia the measure, acted as a prudent shareholder pursuing a structural policy — whether general or sectoral — guided by longer-term prospects of profitability on the capital invested than those of an ordinary investor.

In this context, the Commission took the view, on the basis of the information at its disposal, that, irrespective of how the relevant funds were used, the measure in question provided Alitalia with an economic advantage it would not have had under normal market conditions. This assessment was based on the company’s financial situation and on the conditions and circumstances under which the measure was granted.

Accordingly, the Commission decided to initiate the formal investigation procedure in order to allay its doubts both as to whether the scheme in question constituted State aid and as to its compatibility with the common market.

In their comments, the Italian authorities asserted that the measure in question did not constitute State aid within the meaning of Article 87(1) of the Treaty.

They considered that the Italian State had acted as a shareholder whose objective was to ensure that a company in which it held a stake had the financial resources necessary to meet its liquidity needs in the short term. The ordinary shareholder loan granted by Italy thus constituted a simple bridging loan intended to protect the value of the State’s holding and would have been granted by any prudent shareholder pursuing a structural policy — whether general or sectoral — guided by longer-term prospects of profitability on the capital invested than those of an ordinary investor. In this context, the interest rates applied in the case in point were consistent with the nature and objectives of a shareholder loan. Although such financing is often not onerous, in the case in point it was considered to be onerous, taking into account the nature of the lender and the setting of the interest rate at a level allowing a direct and appropriate return on the capital.

With regard to the Commission’s claim that the doubts concerning the aid nature of the measure in question were substantiated by the fact that it was adopted at the same time as withdrawal of a takeover bid submitted to Alitalia on 14 March 2008 and by the fact that the existence of ‘certain and immediate prospects of Alitalia being purchased by another investor’ was not proven, Italy pointed out that the reasons preventing the privatisation process being finalised with the Air France-KLM group had already been made clear. According to the Italian authorities, however, the non-completion of this process did not undermine the prospect of privatisation in a context making best use of the company’s assets, while safeguarding its residual value for shareholders.

Moreover, developments after 30 May 2008 suggested that this course could still reasonably be followed. In this context, the Italian authorities referred to the contract concluded on 9 and 10 June 2008 with which Alitalia charged Intesa Sanpaolo SpA (hereinafter referred to as Intesa Sanpaolo) with seeking out a bid to the Ministry of Economic Affairs and Finance, as shareholder in Alitalia, and to Alitalia, with the aim that one or more industrial or financial investors interested in participating in the recovery, development and relaunching of Alitalia, particularly through its capitalisation, would take lasting control of the company. This mandate had a duration of 60 days and could be extended by 30 days at the company’s request.

In the alternative, the Italian authorities asserted that, in any event, the measure was compatible with the common market in accordance with the 2004 guidelines.

Firstly, Alitalia was a firm in difficulty within the meaning of those guidelines. Secondly, the measure in question was reversible and thus complied with the requirement of the 2004 guidelines according to which rescue aid must involve purely temporary forms of support and must not constitute structural measures.

Thirdly, the process of privatisation of the company, together with the measure in question, which was adopted to allow completion of this process, complied with the requirements of point 25(b) of the 2004 guidelines. The EUR 300 million loan simply guaranteed the survival of the company, without allowing it to implement competitive strategies on the air transport market likely to lead to hypothetical economic consequences.

Fifthly, in accordance with the requirements of paragraph 25(d) of the 2004 guidelines, granting of the loan in question was necessary by virtue of the company’s immediate liquidity need caused by objective economic difficulties, which were recognised by the Commission in its Decision of 11 June 2008 (see recitals 18 to 20 of the Decision). In this connection, the Italian authorities pointed out that the loan simply aimed to safeguard, in the short term, the survival and assets of Alitalia, in order to allow the privatisation process to succeed. The total amount of EUR 300 million was strictly necessary and proportional to achieving these objectives, as demonstrated by Italy’s presentation of the company’s economic and financial situation in its letter of 30 May 2008 to the Commission (see pages 6 to 9).

Sixthly, and lastly, application of the ‘one time, last time’ principle referred to in paragraph 25(e) of the 2004 guidelines was not contrary to the specific circumstances of the case in point.

They pointed out that application of the ‘one time, last time’ principle was aimed at avoiding a situation whereby repeated public intervention in favour of certain firms simply ‘maintain[ed] the status quo, postpone[d] the inevitable and in the meantime shift[ed] economic and social problems on to other, more efficient producers or other Member States’ (paragraph 72 of the 2004 guidelines). The possibility of waiving this principle was dependent on recognition of the existence of cases where these factors were not verifiable and the cumulation of aid granted over a given period to a single beneficiary was not sufficient to consider that the firm ‘[could] only survive thanks to repeated state support’ (paragraph 72 of the guidelines).

In this connection, privatisation of the company, which remained a possible and credible outcome, could lead, when achieved, to a real change as compared to the existing situation concerning the management of Alitalia, which would be subject to new supervisory bodies, and allow the company to return to profitability through the economic contributions of the shareholders of the new company. The Italian authorities also pointed out that all the external and unforeseen factors which, taken together, had prolonged the privatisation process of Alitalia could undoubtedly be considered exceptional and unforeseen circumstances for which it was not responsible, in accordance with paragraph 73 of the 2004 guidelines.

Five interested parties submitted their comments to the Commission under Article 88(2) of the Treaty. A list of these interested parties is annexed to this Decision.

With regard to whether the measure in question constituted aid, four interested parties supported the Commission’s position, believing that this measure constituted aid within the meaning of Article 87(1) of the Treaty.

British Airways (BA) and Sterling Airlines asserted that, without the measure in question, Alitalia would go bankrupt under Italian law. Alitalia would thus lose its air operator’s certificate in accordance with the civil aviation regulations and, in consequence, would have to cease operations.

Neos pointed out, as regards the interest rate applicable to the measure in question for the purposes of repayment, that the 100 basis points added to the reference rate by no means reflected the risks incurred by the Italian authorities in granting the measure. Neos also supported the Commission’s assessment in its Decision of 11 June 2008 concerning the lack of prospects for the privatisation of Alitalia when the measure in question was granted. Indeed, this circumstance would later be confirmed by the serious tensions during August between the Italian Ministry of Finance and the company’s management board concerning the ‘continuity of the company’ and the approval of its half-yearly accounts.

BA and Sterling Airlines recalled that Alitalia had benefited from similar measures in the past. Meanwhile, Ryanair expressed regret that the Commission had limited the scope of the formal investigation procedure initiated on 11 June 2008 to the measure in question, since, in its view, Alitalia had benefited from other illegal State aid measures since November 2005. Analysing these other measures would have reinforced the view that, in the circumstances in question, a private investor would not have agreed to grant the relevant measure.

Both Neos and Ryanair denounced the distortion of competition which resulted from the support which Alitalia had received from Italy for many years.

As regards compatibility of the measure in question with the common market, BA believed that the measure constituted rescue aid and must thus comply with the conditions set out in the 2004 guidelines. This aid had not been notified to the Commission before being implemented and did not satisfy the conditions of those guidelines.

In this connection, BA pointed out that this measure could not be granted without infringing the ‘one time, last time’ principle in the guidelines (paragraph 25(e) of the 2004 guidelines), since Alitalia had already received restructuring aid approved by the Commission. BA added that the exemption from the ‘one time, last time’ principle under paragraph 73 of the guidelines was not applicable in the case in point, since Alitalia had not had to deal with unforeseen circumstances for which it was not responsible. In this context, BA and Sterling Airlines made clear that the very difficult situation facing the air sector and linked, in particular, to the increased oil price, affected all the participants in the sector. BA inferred from this that this argument could not be validly invoked by Alitalia as reason to derogate from the ‘one time, last time’ principle in the 2004 guidelines. The company’s need for financing was due to its incapacity to reform with a view to reducing its internal costs, despite the State aid which it had already received.

Moreover, according to BA, the measure in question was not liquidity support in the form of loan guarantees or loans, but had the characteristics of an injection of capital guaranteeing the Italian Government effective control of the company (paragraph 25(a) of the 2004 guidelines).

With regard to the condition in the 2004 guidelines linked to the existence of serious social difficulties, BA stressed that the insolvency of Alitalia would not cause serious disruption to passengers, owing to the existence of competitors on both national and international routes. As for adverse spillover effects on its competitors, these resulted from the preservation of Alitalia on the market despite its financial difficulties, the increase in its number of routes, particularly from Rome and Milan to Los Angeles, and the reduction in its fares. These commercial decisions were not rational given the company’s financial situation and demonstrated its wish to increase its market share as compared to those of its competitors not in receipt of State aid (paragraph 25(b) of the 2004 guidelines).

Moreover, the measure in question was not granted to Alitalia for a period limited to six months, as required by the 2004 guidelines (paragraph 25(c)).

Lastly, BA pointed out that, as this commercial strategy was characterised by non-essential expenses being incurred, it could not be guaranteed that the aid in question was limited to the amount needed to keep the company in business for the period for which it was authorised, as this amount had to be based on the liquidity needs of the company stemming from losses (paragraph 25(d) of the 2004 guidelines).

Ryanair criticised the Commission for not having already demanded the immediate suspension of the measure and asked that Alitalia be required to immediately repay the EUR 300 million that had already been granted to it by Italy. Ryanair also stressed that, contrary to the claims of the Italian authorities, no motive of public order and territorial continuity could be invoked to justify the granting of the measure in question to Alitalia. In this context, Ryanair referred to the reduction in Alitalia’s market share on certain routes.

By contrast, the European Travel Agents’ and Tour Operators’ Associations (ECTAA) and the Guild of European Business Travel Agents (GEBTA) considered that granting the measure in question aimed at preventing Alitalia’s bankruptcy was likely to protect consumers in the absence of legislation protecting passengers in the event of the company going bankrupt. ECTAA and GEBTA added that granting the loan in question was the only reasonable solution to avoid Alitalia going bankrupt and to help it in its privatisation process. Given the prospects for relaunching the company reported in the press, granting this loan was economically justified in order to lead to a complete restructuring of Alitalia with a view to future profits.

• Commission Decision of 15 July 1997 concerning the recapitalisation of Alitalia11: in this Decision, the Commission considered that, subject to certain undertakings being met, the recapitalisation of Alitalia in the form of a capital injection of 2 750 billion Italian lire was State aid compatible with the common market under Article 87(3)(c) of the EC Treaty.
• Commission Decision of 18 July 2001 concerning the recapitalisation of Alitalia12: since its Decision of 15 July 1997 had been annulled by the Court of First Instance13, the Commission adopted a new Decision concerning the same recapitalisation. In this Decision, the Commission reached the same conclusion as in its Decision of 15 July 1997, namely that the recapitalisation of Alitalia was State aid compatible with the common market14.
• Commission Decision of 19 June 2002, C 54/96 and N 318/02 — Third instalment of aid for the restructuring of Alitalia approved by the Commission on 18 July 2001 and new recapitalisation of EUR 1,4 billion15: with this Decision, the Commission approved the abovementioned third instalment (EUR 129 million) and considered that the new recapitalisation was not State aid within the meaning of Article 87(1) of the Treaty.
• Commission Decision of 20 July 2004, N 279/04 — Urgent measures in support of the restructuring and relaunch of Alitalia (rescue aid)16: with this Decision, the Commission authorised rescue aid in the form of a State guarantee for a bridging loan of EUR 400 million17.
• Commission Decision 2006/176/EC of 7 June 2005 on Alitalia’s industrial restructuring plan18: in this Decision, the Commission considered that the measures in question did not constitute State aid within the meaning of Article 87(1) of the Treaty.

Following the formal investigation procedure initiated on the basis of Article 88(2) of the Treaty, and taking account of the arguments submitted in this connection by the Italian authorities and the interested parties, the Commission believes that the measure in question, namely the EUR 300 million loan granted to Alitalia, the value of which can be counted as part of the company’s capital, constitutes State aid which is incompatible with the common market within the meaning of Article 87(1) of the Treaty and unlawful within the meaning of Article 88(3) of the Treaty.