Poland clarifies that during the first stage, the company established by Gdynia and Kosakowo was realising preparatory tasks (e.g. preparation of a master plan for the investment, documents necessary to obtain the status of an airport operator, a report on the environmental impact of the investment, project documentations, etc.).

Poland explains that on 29 July 2010, the equity (own capital) of the company was increased to PLN 6,052 million (around EUR 1,5 million). Poland explains further that at the same time, despite the MEIP study showing that the investment does not constitute State aid, the shareholders started to prepare a notification to the Commission that was to be submitted for reasons of legal certainty only.

• The shareholders signed, on 11 March 2011, an agreement that set up the financing conditions for the investment, concerning the start-up of a civil aviation airport. In this shareholder agreement Gdynia committed to inject in total PLN 59 million between 2011 and 2013. At the same time, Kosakowo committed to provide non-cash contributions by means of a debt-to-equity swap (as described in Table 2) in years 2011 to 2040.

• Also on 11 March 2011, the land lease contract was concluded by the company responsible for setting up Gdynia airport and Kosakowo (it allowed to precise the scope of property leased, the conditions for payment of the rent, tax issues, etc.)

• The investment costs included in the investment plan were specified and updated.

Poland explains that the 2011 MEIP study resulted also in a positive NPV. Poland explains further that the public shareholders of the airport manager conducted on this basis the subsequent capital injections. Poland points out that in July 2011 the equity (own capital) of the company was increased to PLN 33,801 million (EUR 8,45 million) and in April 2013 to PLN 64,810 million (EUR 16,20 million).

• The forecasted passenger traffic for Gdynia airport was reduced;

• The scope of the investment was reduced, what led to the reduction of the investment costs by PLN […] million (EUR […] million);

• The idea of building a main terminal (together with related development of road infrastructure and car park) was abandoned, instead it was decided to expand the capacity of the general aviation terminal by […] in the second investment phase;

• After market verifications, the investment costs related to the security area had to be increased by PLN […] million (EUR […] million),

• The reduction of the scope of investment resulted in a shorter payback period for the investment (in nominal terms, by […] years from […] years to […] years).

• To better reflect the structure of financing and the cost of debt servicing, the Free Cash Flow to the Firm (hereinafter: ‘FCFF’) discounted cash flow method was replaced by the Free Cash Flow to Equity (hereinafter: ‘FCFE’) method25.

• Following the financial (securities) market changes, risk free interest rate and the Beta factor were updated. Moreover, companies from outside Europe were eliminated from the comparative analyses. This resulted in a new discount rate.

• The discount rate for calculating the NPV was set up based on the analysis of comparable companies, covering both airport companies and companies providing airport services (financial of which results are strongly correlated with the performance of airport companies)26.

• It was assumed that the project would be financed first by shareholders’ resources and then from external sources (working capital loans) as well as from operating revenues.

Poland summarises that while local authorities took preliminary steps to set up Gdynia airport as early as 2005, the project took its shape only with the preparation of the Master plan and the first MEIP study, i.e. in 2010. Poland clarifies further that the project was then substantially revised from its original assumptions as a result of changes in external circumstances. Poland argues that the final decision of public shareholders on the implementation and final shape of the project was made in 2012. Poland also stresses that each of the three versions of the MEIP study confirmed the project’s viability and demonstrated that a market economy investor would had carried out the project.

On the counterfactual scenario, Poland argues that according to the national law, Kosakowo could use the land, on which Gdynia airport is located only to set up a new civil aviation airport. In this respect, Poland clarifies that with this restriction, the land of airport was leased to Kosakowo for a period of 30 years. Poland clarifies further that the rental agreement obliges Kosakowo to lease the land only to an entity responsible for setting up and/or operating a civil aviation airport. According to Poland, the land could have been taken over by the State, if Kosakowo had not leased the land to set up a civil aviation airport within 6 months, or the land was used for other purposes, or the airport had not started its activities within 3 years. The scenario where the land of Gdynia airport is used/leased for other than aviation purposes was not possible and therefore could not be used to establish a counterfactual scenario.

Poland explains that the planned airport charges were based on publicly available tariffs of other airports in such a manner so as not to disrupt the existing market while ensuring an appropriate level of the project’s profitability based on the projected passenger traffic volume. According to Poland, the charges do not differ significantly from standard tariffs charged by small airports. In particular two newly opened regional airports, the Modlin airport and the Lublin airport have standard airport charges that are similar to those projected in the MEIP study for Gdynia airport.

In reply to the Commission’s comment that the charges foreseen for Gdynia airport (PLN 25 (EUR 5,25) in the first 2 years and then PLN 40 (EUR 10) per departing passenger) are higher than applied, discounted charges at Gdansk airport (PLN 24 (EUR 5) per departing passenger by an aircraft of LCC type if an international route is served at least 2 times per week; for a domestic route the charge would be PLN 12,5 (EUR 3,1)), Poland notes that the level of charges in the business plan is averaged for the whole forecast period (2014-2030) and takes into account the fact that in the long-period term charges at Gdansk airport will have to increase following improved standard of service at that airport.

Moreover, Poland points out that due to the project’s profit margin, revised (slightly higher) air traffic forecast and possible sharing of some operational costs with the military, Gdynia airport should be able to maintain reduced passenger charges over a longer period (the reduced charges could be applied until the end of 2021) while maintaining a positive NPV for the public shareholders.

Poland also argues that the updated (in March 2013) traffic forecast for the Pomeranian Region foresees higher traffic than that applied in the 2012 MEIP study. According to the latest figures, the traffic at Gdynia airport in 2030 would be 1 149 978 instead of 1 083 746. For the whole Pomeranian Region the increase for 2030 is foreseen from 7,8 to 9 million passengers.

1. (i)

   operating costs, such costs being estimated on the basis of available financial statements of all major Polish airports,

2. (ii)

   other costs by type, which are projected for Gdynia Airport at a conservatively high level, also taking into account the corresponding costs in other airports.

Poland also clarifies that the MEIP study assumed that entire operating cost would be borne by the investor and does not take into account any sharing of operating costs with the military user of the airport. Poland states that it is assumed that the operating costs of shared infrastructure will be shared […] to the number of civil and military flight operations. Poland clarifies further that the costs of renovation and repairs will be […]. Poland stresses that the adoption of rules on shared use of the airport (not yet formally agreed with the military user of the airport) will lead to a minimum reduction of […] in costs related to third party services and payroll. According to Poland, inclusion of this factor in the MEIP studies would result in a higher projected profitability of the project.

Poland explains that the growth rate of […] % adopted in the MEIP study refers to the terminal value in nominal terms.

Poland clarifies further that the growth rate of […] % is equal to Poland’s inflation target as set by the Monetary Policy Council (a decision-making body of the National Bank of Poland). Poland points out that according to the latest forecast by the International Monetary Fund of July 2013, Poland’s GDP will grow at the rate of 2,2 % in 2014, 3 % in 2015, 3,3 % in 2017 and 3,8 % in 2018.

In November 2013, Poland informed that the airport manager had just received the administrative decisions from the Customs Office and the Energy Regulatory Office allowing it to directly sale fuels to aircrafts. The sale of fuels by the airport manager would be a source of additional revenues improving the financial result of the business plan.

According to Poland, all MEIP studies conducted until now foresaw that the sale of fuel would be provided via an external operator. The sale of fuel by the airport manager would increase company’s profit margin on this activity from PLN […] (EUR […]) per litre (in case the fuel is sold by an external operator) to PLN […] (EUR […]) per litre (in case of selling the fuel directly by the airport manager).

In the view of Poland, these additional revenues would improve the 2012 MEI update result. Poland points out that the NPV for the project is thus expected to increase from PLN […] million (EUR […] million) to PLN […] million (EUR […] million). Poland in addition clarifies that the IRR would increase from […] % to […] %.

Poland argues that the additional revenues would alternatively allow reducing the airport charges for airlines in long-term.

Poland confirmed that the sale of fuel on its own was not included in the conducted MEIP studies due to a prudential approach. At the time when these studies were conducted, the airport operator did not have the required permissions and it was not guaranteed that it would be in the position to obtain any of them.

In addition, Poland informed that the company intends to provide the navigation services to airlines (instead of the Polish Air Navigation Services Agency). Poland points out that this would allow reducing the terminal fee paid by airlines (paid now to the Agency) and in this way the attractiveness of Gdynia airport to airlines would increase. Consequently, the airport manager could offer more competitive airport charges to airlines than the neighbouring airports.

Poland argues that setting up Gdynia airport, as an element of the Pomeranian Region’s transport system, optimizes the use of available infrastructure and will have a positive impact on regional development, notably through an increase in airport jobs, income from the chain of supplies for the aviation market, and tourism development.

According to Poland, the main arguments for the construction of a hub of airports in the Tricity area are: increasing air traffic in Poland, the exhaustion of Gdansk Airport’s capacity for adaptation and stretching the agglomeration over a distance of nearly 60 km (including the cities of Tczew and Wejherowo this distance increases to over 100 km). Poland argues that while, following the expansion of its terminal; Gdansk Airport has currently a capacity of ca. 5 million passengers, some air traffic forecasts project that the potential passenger traffic in that airport will exceed 6 million passengers in 2035. Poland has submitted in its comments on the one hand that in view of the environmental restrictions and the residential developments in the neighbourhood of Gdansk airport, its further expansion prospects are limited. On the other hand, in the submission of 6 December 2012 Poland argued that there are no restrictions regarding the expansion of Gdansk airport and to this effect it referred to the Master plan of Gdansk aiport.

Poland states that the safety of aircraft operations further justifies the construction of a hub of airports in the Tricity area with Gdynia airport serving as a back-up, emergency airport (landing in Gdynia airport is possible in ca. 80 % of cases when cloud base and visibility do not allow landing in Gdansk airport).

Lastly, Poland argues that the development of Gdynia airport corresponds to the objectives of national and regional strategic documents concerning the development of aviation infrastructure in Poland. Poland clarifies that the development of Gdynia airport has an expected positive impact on the development of the Pomeranian Region and the use of existing military infrastructure, and is complementary to Gdansk Airport.

Poland argues that the infrastructure is necessary and proportionate to the objective set because of its small scale of the airport’s operations (1,55 % share in the Polish aviation market in 2030), forecasts for passenger traffic volumes that exceed Gdansk airport’s expansion capacity, the attractiveness of the region for tourism and the projected high rate of development for the Pomeranian Region.

Poland emphasizes the strategic role of the military airport of Gdynia in the region and notes that the use of the existing infrastructure minimizes investment costs and maximizes the positive impact on the regional development.

Poland also points out that the costs have been minimized and the effectiveness of the investment has been increased through the implementation of technical solutions such as, for example, the construction of the general aviation terminal for both general aviation and passenger traffic, the placement of the majority of airport services (border guards, customs offices, the police, fire brigade, management) in a single building and the adaptation of other existing buildings to optimise their use. Moreover, operating costs of the infrastructure will be shared with the army.

Poland points out that given the GDP growth in the Pomeranian Region that is expected to be higher than the average growth for Poland and the EU, the region’s touristic attractiveness, its status as a hub of foreign investments and increasing air traffic forecasts, the medium-term prospects for use for Gdynia airport are satisfactory.

Poland stresses that the planned collaboration with Gdansk airport and the complementarity of services offered by the two airports (as such, Gdynia airport will be dedicated mainly to general aviation traffic) further strengthen the medium and long-term prospects for Gdynia airport.

Poland further explains that the airport has also plans to develop specialised aviation-related activities within the airport zone, such as for example a production of simple service components, refitting of parts in aircrafts or the production of other components/products for which deliveries are handled in the ‘just in time’ model.

Poland points out that a letter of intent, signed by a commercial bank that expresses the bank’s willingness to open talks on financing the investment into Gdynia airport is another proof of the project’s attractiveness.

Since Gdynia airport is to be an airport with a small market share (and would serve less than 1 million passengers per annum), Poland considers that the impact on trade of the project is not contrary to the common interest. In the light of projected growth in air traffic, Poland foresees that the airports of Gdansk and Gdynia will form a collaborating aviation hub serving the Pomeranian Tricity area offering complementary services.

Poland stresses that Gdynia airport will not be a competitor for Gdansk airport as it will focus on the provision of services for general aviation sector (maintenance, repair and overhaul services, a flight academy), and collaboration with Gdynia seaport.

Poland further argues that charter and low-cost traffic at Gdynia airport will not be at the cost of Gdansk airport, but will result from an overall increase in wealth and mobility of the population. Poland points out that taking into account the rate at which Gdansk airport is growing and the nature of the aircraft operations it handles, there is a risk that Gdansk airport will soon have to limit the number of flights or, in the long-term. Poland states that these conclusions are presented in the environmental impact assessment report on the project ‘Expansion of the Lech Walesa Gdansk Airport’.

Poland clarifies that the investment into Gdynia airport may limit financial and social costs that will have to be borne if the operation at Gdansk airport would be restricted. Poland points out that taking over a part of air traffic from Gdansk airport by Gdynia airport will result in a better use of the capacity of both airports.

Poland argues that the company would not have carried out the project without public financing. Poland notes that the aid was limited to a minimum and costs of the project were reduced and optimised through the use of existing military infrastructure.

1. (i)

   the project’s internal rate of return of […] % that is only slightly higher than the discount rate (cost of equity), equal to […] % (based on the 2012 MEIP Study);

2. (ii)

   the necessity to use a working capital loan to finance the airport’s operations as otherwise the Company might lose liquidity according to financial projections;

3. (iii)

   the fact that the total financing from the equity capital is lower than total capital expenditure (financing from the equity capital accounts for less than […] of total cash costs in the forecasted period, including total capital expenditure).

Poland further clarifies the proportionality of the aid measure by comparing its public financing (ca. PLN 148 in real terms) with that of a greenfield investment (Lublin-Świdnik Airport, ca. PLN 420 million net construction costs) and an investment based on a military airport (Warsaw-Modlin Airport, ca. PLN 454 million construction cost to date).

With respect to capital injections, the Commission notes that the first important capital injection of PLN 4,4 million was decided on 29 July 2010 (almost quadrupling the existing capital of PLN 1,7 million), right after the 2010 MEIP study of 16 July 2010 was finalized. In addition, the agreement on the further capital injections (until 2040) to finance the conversion project (mentioned above in recital 33) was signed in March 2011 (even before the finalization of the second MEIP study of 13 May 2011). Moreover, at the same time also the operational agreement with the military user of the airport (7 March 2011) and the rental agreement for the land of the company (11 March 2011 (mentioned above in recital 33)) were concluded.

The Commission also underlines that Poland confirmed that the capital injection decided on 29 July 2010 was based on the economic assessment of the project contained in the 2010 MEIP study. It is therefore clear that at this stage the public shareholders had resolved to engage in the investment project in question to be realised over 30 years. Even though it is possible for a private investor to adjust its investment plan in the course of its implementation in the light of changing circumstances, it is clear that any private investor would have assessed the merits of the investment project at hand already in 2010 before starting to put substantial resources in it.

In view of the recitals 103 and 108, the Commission considers that neither the 2011 MEIP nor the 2012 MEIP study updates were conducted at the time and on the basis of the information at the disposal of the public shareholders when the main decision to finance the conversion project was taken. Furthermore, the Commission cannot retroactively take into account the expected additional sources of revenues, based on the information provided in November 2013, in order to justify the decisions taken by the public shareholders in 2010 and 2011.

Hence, in the light of the foregoing, the Commission considers that in order to assess whether Gdynia and Kosakowo adopted the conduct of a private investor operating in a market economy, it must base first of all its assessment on the 2010 MEIP study and disregard any further developments and information that were not at the disposal of those public shareholders at the time when they took their decision to realise the investment project in question.

On the other hand, the 2011 MEIP study and the 2012 MEIP study assessed only the amendments to the initial decision to embark in the investment project that was taken in 2010 on the basis of the 2010 MEIP study. Indeed, the 2012 MEIP study recognizes that a number of investments (such as the general aviation terminal, administration building, electricity power system) were already in ‘advanced stages of implementation’. The two subsequent studies show that the shareholders were following market developments and were accordingly adapting the scope of the project (either upwards or downwards depending on the investment item). However, those changes were only marginal relative to the overall decision to convert the military base into a civil aviation airport. The graph below (Figure 3) shows the capital expenditures as presented in the 2010, 2011 and 2012 MEIP studies (expressed in 2010 real terms). As can be seen, while the timing and extent of the investments were updated both in 2011 and 2012, these changes were not substantial regarding the overall size of the project. In 2010, the real capex was estimated at about PLN […] million and this figure was […] to about PLN […] million in both 2011 and 2012 (i.e. […] % over an investment period of almost 20 years).

The Commission notes that the Pomeranian Region is already efficiently served by Gdansk airport, which is located only around 25 kilometres away from the planned new airport.

The Gdansk airport is located next to the Tricity ring road, this road is a part of S6 express road that bypasses the cities of Gdynia, Sopot and Gdansk, and ensures easy access to the airport to the large majority of Pomerania Region’s inhabitants. Even for Gdynia’s inhabitants, the construction of a new airport would as such not lead to a substantial improvement in their connectivity, because both airports (Gdynia and Gdansk) can be reached from the centre of Gdynia in the same time of approximately 20-25 minutes by car.

The Commission also observes that the Tricity Metropolitan Rail link, which is co-financed with the Union structural funds and is under construction, will provide a direct rail connection from Gdansk airport both to Gdansk and Gdynia citizens from the centres of their cities in a similar time of around 25 minutes. The Tricity Metropolitan Rail will also provide direct or indirect rail connection to Gdansk airport to the citizens of other parts of the Pomeranian Region.

The Commission further observes that the current capacity of Gdansk airport is 5 million passengers per annum while the actual passenger traffic in 2010 to 2013 was as follows: 2010 – 2,2 million, 2011 – 2,5 million, 2012 – 2,9 million, 2013 – 2,8 million. The Commission also notes that Gdansk airport is being expanded now to the capacity of 7 million passengers per annum. This investment is to be finalised in 2015.

The Commission further observes that according to the information provided by Poland, the Master Plan for Gdansk airport foresees further expansions of the airport to serve more than 10 million passengers per annum. Therefore, the concrete decision to expand the capacity of the Gdansk airport above 7 million can be taken in the future depending on the traffic developments.

According to Poland, the updated forecast (prepared in March 2013) shows that demand in the catchment area is expected to be higher than the traffic projections in 2012. According to the modified projections the demand in the catchment area amounts to around 9 million passengers in 2030. However, even this forecast shows that Gdansk airport alone would be sufficient, without a further investment, to serve the demand in the region at least until 2025 (on the basis of the adjusted traffic forecasts as described in recital 45).

Furthermore, according to the information provided by Poland the current capacity of the runway in Gdansk airport is 40-44 operations per hour and the current use is on average 4,7 operations per hour.

On the basis of information provided by Poland (see recitals 192–196 above) the Commission observes that Gdansk airport will be only used at around 50–60 % of its capacity in the coming years. Consequently, even in the event of a dynamic passenger growth in the Pomeranian Region, Gdansk airport will be able to meet the demand of airlines and passenger during a long period of time.

The Commission further observes that Gdansk airport offers more than 40 national and international destinations (both point to point connections and connections to hubs: Frankfurt, Munich, Warsaw and Copenhagen).

As mentioned in recital 60, Poland argues on the one hand that for land planning and environmental consideration the extension of the capacity of Gdansk airport is limited. On the other hand, Poland argues that there are no limitations to the capacity extensions at Gdansk airport. The Commission considers that the arguments regarding the capacity expansion restrictions are contradictory and in any case they are not substantiated and therefore, the Commission cannot base its assessment on them.

In view of the spare capacity of Gdansk airport that will not be fully used in the long-term, and the plan to further expand capacity at that airport if necessary in the long term, the Commission considers that the creation of another airports in the Pomeranian region would not contribute to the region’s development. The Commission further observes that with Gdansk airport the Pomeranian Region is already well connected and the new airport will not increase the connectivity of this region.

The Commission also notes that the business model of Gdynia airport suggests that it would compete for passengers with Gdansk airport in the LCC, charter and also general aviation markets. Moreover, the creation of a new airport to serve as a back-up, emergency airport cannot justify the scale of investment at Gdynia airport.

In the light of the above, the Commission considers that the investment at Gdynia airport will lead to a mere duplication of infrastructures in the region, which does not meet a clearly defined objective of common interest.

As stated in recitals 189 to 202, the Commission considers that the catchment area of Gdynia airport is and will be efficiently served by Gdansk airport. In addition, both airports would pursue a similar business model and focus mainly on LCC’s and charters.

In absence of a clearly defined objective of common interest the Commission considers that the infrastructure cannot be considered to be necessary and proportional to an objective of common interest (see also recital 202 above).

As stated in point (i), Gdynia airport is located only around 25 kilometres away from the existing Gdansk airport and both airport have the same catchment area and a similar business model.

The capacity of Gdansk airport is currently used at less than 60 %. Taking into account the investments currently being carried out, Gdansk airport is sufficient to serve, depending on the forecasts used, the demand in the region at least until 2025–2028 and further expansions of Gdansk airport are feasible.

The Commission also notes that the business plan for Gdynia airport shows that the airport would generate about [80–90] % of revenue from serving low-cost and charter carriers. It means that it would focus on markets that are a core business of Gdansk airport.

In this context, the Commission also observes that Poland did not provide any proofs of a possible collaboration between both airports.

Also plans to generate revenues from other aviation and non–aviation activities (production and services) would not alone be sufficient to cover the high operational costs related to running Gdynia airport.

Consequently, the Commission considers that Gdynia airport does not have satisfactory medium-term prospects for use.

Poland confirmed that all potential users will have access to the airport infrastructure on an equal and non-discriminatory basis without any commercially unjustified discrimination.

The Commission notes that Poland did not provided any proofs that Gdynia and Gdansk airport would form a collaborative aviation hub. Rather, it would seem logical that the two airports would have to compete for essentially attracting the same passengers.

The Commission further notes that the business plan of Gdynia airport (around [80 - 90] % of revenue generated by low-cost and charter flights) and the scale of investments (e.g. a terminal with the capacity of 0,5 million passengers per annum that is to be expanded in the future) do not confirm the view that Gdynia airport would focus on general aviation traffic and would provide only or mainly services to the general aviation sector.

Taking into account the above and the fact that both airports would focus first on LCC and charters, the Commission considers that the aid is directed to an airport, which would be in direct competition with another airport in the same catchment area without there being a demand for airport service that could not be served by the existing airport.

Therefore, the Commission considers that the aid in question would affect trade to an extent contrary to the common interest. The absence of a common interest objective that the aid is intended to achieve, strengthen that conclusion.

Based on the data provided by Poland the Commission considers that the investment costs can be lower than for the construction of other comparable regional airports in Poland. This is mainly due to usage of existing infrastructure of the military airport. Moreover, Poland argues that without the aid the investment would not be undertaken by the airport manager.

The Commission further observes that due to long period necessary to reach the break-even point for such type of investment the public financing could be necessary to change the behaviour of the beneficiary in such a way that it entered the investment. Moreover, since the expected profitability of the investment project cannot be established (see recital 177) and a market economy investor would not pursue such project, it is indeed likely that the aid changes the behaviour of the airport manager.

However, in absence of a clearly defined objective of common interest, the Commission concludes that the aid cannot be considered to be necessary and proportional to that objective.

Consequently, the Commission considers that the investment aid of Gdynia and Kosakowo in favour of Gdynia-Kosakowo Airport Ltd does not comply with the requirements of the 2005 Aviation Guidelines and cannot be found compatible with the internal market.