The first ASA between Ryanair and So.Ge.A.AL was agreed on 22 June 2000 for a period of 10 years.

So.Ge.A.AL undertook to provide terminal and handling services to Ryanair. The airport manager was to ‘pay or credit’ a monthly amount equivalent to the amount payable by Ryanair for handling fees, with a cap for the first year of the agreement. So.Ge.A.AL also undertook to pay annually to Ryanair a fixed amount and an additional amount should a second return flight be added to its schedule.

Ryanair signed a second ASA with So.Ge.A.AL on 25 January 2002, which superseded the 2000 ASA and covered the period between 1 January 2002 and 31 December 2012. Based on that agreement Ryanair was to pay So.Ge.A.AL EUR […] per turnaround for handling services. Ryanair was to pay airport fees and security charges as per the published schedule of charges.

On the same date, a marketing agreement was signed between So.Ge.A.AL and Ryanair, which covered the same period as the 2002 ASA. Ryanair undertook to carry out advertising and promotional activities on its web page and other media at its discretion to promote the connection Alghero — London in consultation with So.Ge.A.AL. Based on this agreement So.Ge.A.AL was to pay marketing contributions of EUR […] for the first daily year round rotation on each route and EUR […] for the second daily summer-only rotation on each route.

On 1 September 2003, So.Ge.A.AL signed with Ryanair a new ASA, for a period of eleven years (with the possibility of an extension for an additional period of 10 years), superseding the 2002 ASA.

Based on the 2003 ASA, Ryanair was to continue to fly to London and depending on the success of previous agreements in terms of traffic flows, Ryanair was to set up a new daily flight to Frankfurt-Hahn or to any other points on the Ryanair network. Ryanair was to pay So.Ge.A.AL EUR […] per turnaround for handling services. In turn, the airline was to pay airport fees and security charges as per the published schedule of charges.

On 1 September 2003, a marketing services agreement was also signed, which covered the same period as the 2003 ASA. Based on that agreement So.Ge.A.AL was to pay marketing contributions of (i) EUR […] per annum for the first daily year-round rotation on each international route, (ii) EUR […] for the second daily summer-only rotation on each route, and (iii) a one-off introductory marketing contribution of EUR […] in respect of the first year of operation of each international route other than the London route and a further EUR […] for each of the second and third years of operation of such new route.

• design, arrange, produce, develop, test, implement, maintain and update web links and the Ryanair website and undertake any other measures which are deemed appropriate by Ryanair as being capable of generating, maintaining and/or promoting the advertising efforts with respect to bookings by customers through the internet to and from Alghero airport;

• design advertising in English or other language (if appropriate) adapted to the internet medium and undertake sales promotion and public relations as being capable of generating, maintaining and/or promoting the awareness of the Services by customers through the internet;

• design, arrange and produce advertising material or any other relevant method of promoting the Services;

• design, arrange and produce advertising material or any other relevant method of promoting Alghero airport in the United Kingdom and in any other country in which Ryanair inaugurates a route of the Services;

• educate the press about the Services and thereby influence the general public, make them more familiar with the region surrounding Alghero airport and encourage them to fly on the routes in question;

• arrange to link one website proposed by So.Ge.A.AL and agreed with Ryanair to Ryanair's internet website subject to such website not containing any direct on-line hotel or car hire reservation function.

On 3 April 2006, a new ASA was agreed between So.Ge.A.AL and Ryanair, which replaced the 2003 ASA and was effective from 1 January 2006 to 31 December 2010, with the possibility of a five-year extension.

Associated with that agreement was a supplemental agreement signed on 3 April 2006 for the period 1 January 2006-31 December 2010, which stipulated the overall passenger targets to be achieved by Ryanair and the success fee payable by So.Ge.A.AL. It also provided for penalties to be incurred by Ryanair in case of non-fulfilment of the passenger targets.

The 2006 marketing agreement was signed with AMS (rather than Ryanair) on 3 April 2006 and covered the same period as the ASA. The agreement was rooted in Ryanair's commitment to operate certain EU routes and to meet certain targets as to the level of passengers. AMS offered So.Ge.A.AL online advertising services in exchange for EUR […] per year.

In the early part of 2010, So.Ge.A.AL and Ryanair expressed their intention to renew the terms of their existing relationship by negotiating a new agreement and signed a Memorandum of Understanding (MoU) on 10 March 2010. The MoU states that ‘starting from March 2010 Ryanair and So.Ge.A.AL shall negotiate in good faith in order to redefine the terms and the provisions of their partnership’.

On this basis, a new ASA was subsequently signed between So.Ge.A.AL and Ryanair on 20 October 2010, which replaced the 2006 ASA. This agreement laid down new fees and incentive structure for the period between 1 January 2010 and 31 December 2013, with the possibility for a five-year extension upon expiry of the initial term of the agreement.

So.Ge.A.AL undertook to pay success fees for targeted numbers of flights and certain levels of passenger traffic, while Ryanair undertook to pay for handling fees and airport charges, and to carry out sales promotion and public relations activities.

A marketing agreement was signed on the same day for a four-year duration with a possibility to extend it for a further four years. AMS offered So.Ge.A.AL a package of online advertising services in exchange for the following annual rates: EUR […] for 2010; EUR […] for 2011; EUR […] for 2012; EUR […] for 2013. As in 2006, the marketing agreement was rooted in Ryanair's commitment to operate certain EU routes and to meet certain passenger targets.

The handling agreement between Germanwings and So.Ge.A.AL was signed on 19 March 2007 and was set to apply as of 25 March 2007. Based on this agreement Germanwings was to pay So.Ge.A.AL EUR […] per turnaround for handling services.

On 25 March 2007, a marketing agreement was signed between Germanwings and So.Ge.A.AL by which the carrier undertook to operate certain EU routes and to meet certain passengers and frequency targets. The agreement was to apply from 25 March 2007 to 31 October 2009. However, Germanwings only operated from Alghero airport in 2007. According to Italy the carrier decided to stop operations from Alghero airport as it could not generate sufficient traffic to break even from a financial perspective.

The marketing agreement laid down a ‘start-up’ contribution amounting to EUR […] to be paid by So.Ge.A.AL to Germanwings ‘in order to promote Alghero airport in increasing the volume of departing passengers by opening a new route’.

The marketing agreement also set out success fees to be paid by So.Ge.A.AL to Germanwings if the airline met the stipulated traffic targets. The agreement also specified penalties to be paid by Germanwings to So.Ge.A.AL in the event that the airline either cancelled over 10 % of its flights or did not meet the stipulated traffic targets.

On 29 November 2007, Volare signed a handling and a marketing agreement with So.Ge.A.AL.

The handling agreement set out goals to be met by the carrier in terms of number of passengers and flights per year, and the corresponding success fees to be paid by So.Ge.A.AL.

The marketing agreement laid down an annual marketing fee of EUR […] to be paid by the airport manager as ‘advertising support for the first year of activity’. The marketing agreement applied during from 28 October 2007 to 31 October 2010.

Meridiana operated from Alghero airport in 2000, 2001 and 2010.

In 2000 and 2001, Meridiana did not operate scheduled services from Alghero airport, and only provided flight services based on charter demands. As such, no formal handling agreements were signed between So.Ge.A.AL and Meridiana. The carrier paid So.Ge.A.AL published airport charges for all airport services.

Meridiana did not operate from the airport between 2002 and 2010. In 2010, Meridiana took up operations from the airport and signed a marketing agreement as well as a handling agreement with So.Ge.A.AL.

The handling agreement was signed on 28 April 2010 and covered the period between April 2010 and April 2011. Based on this agreement Meridiana was to pay So.Ge.A.AL EUR […] per turnaround for handling services.

The marketing agreement was signed on 20 October 2010 and covered the period between June 2010 and October 2010. The agreement specified a one-off payment of EUR […] (excluding VAT) to be paid by So.Ge.A.AL to Meridiana relating to the start-up of routes to/from Milan, Verona and Bari in summer 2010. The payment was conditional on Meridiana meeting certain traffic targets. According to Italy, during the time for which the agreement with Meridiana applied retrospectively, So.Ge.A.AL had been negotiating with the carrier similar terms which were eventually included in the signed agreement. In this sense, Italy provided to the Commission a draft agreement which was being negotiated at the time by Meridiana and So.Ge.A.AL dated 7 June 2010.

Until 2010, Air One/Alitalia did not sign any formal agreement with So.Ge.A.AL and paid So.Ge.A.AL published airport charges for all airport services. Until 2010, So.Ge.A.AL did not provide ground-handling services to Air One/Alitalia.

In 2010, So.Ge.A.AL started to provide ground-handling services to Air One/Alitalia. This led to Air One/Alitalia signing a handling agreement with So.Ge.A.AL. The two parties also entered into a marketing agreement relating to Air One/Alitalia's start of international routes from Alghero airport.

The marketing agreement was signed on 20 October 2010 and covered the period from 7 June 2010 to 30 September 2010. Italy provided to the Commission the draft agreement which had been negotiated at the time by Alitalia and So.Ge.A.AL in May 2010. The signed agreement specified a one-off marketing payment of EUR […] to be received by Air One/Alitalia for providing marketing services to So.Ge.A.AL in that period, with the possibility of the agreement being extended to 2011 and 2012.

The handling agreement was signed between Air One/Alitalia and So.Ge.A.AL on 30 November 2010 for a period of six years and specified handling charges to be paid by Air One/Alitalia to So.Ge.A.AL for domestic and international routes.

During the investigation So.Ge.A.AL claimed that it was entrusted with the provision of an SGEI. So.Ge.A.AL claims it discharged PSOs, enshrined in the Convention (see recitals 173-176).

1. (a)

   as concerns the management of the airport, by means of the different Conventions signed by So.Ge.A.AL with the State;

2. (b)

   as concerns the airport infrastructure, by means of the different acts laying down its financing by public funds.

1. (a)

   the recipient undertaking must actually have public service obligations to discharge and these obligations must be clearly defined (‘Altmark 1’);

2. (b)

   the parameters on the basis of which the compensation is calculated must be established in advance in an objective and transparent manner (‘Altmark 2’);

3. (c)

   the compensation cannot exceed what is necessary to cover all or part of the costs incurred in the discharge of public service obligations, taking into account the relevant receipts and a reasonable profit for discharging those obligations (‘Altmark 3’);

4. (d)

   where an SGEI mission is not entrusted to an undertaking pursuant to a public procurement procedure, the level of compensation needed must be determined on the basis of an analysis of the costs which a typical undertaking, well run and adequately provided with means to meet the necessary public service requirements, would have incurred in discharging those obligations, taking into account the relevant receipts and a reasonable profit for discharging the obligations (‘Altmark 4’).

The Commission first assesses observance of the Altmark 2 criterion. Given that the Altmark criteria have to be complied with cumulatively, non-observance of either one of those conditions would lead to the conclusion that the presence of an advantage cannot be excluded on the basis of this test, even if the services provided by So.Ge.A.AL qualify as SGEIs.

In this case the parameters for the calculation of the compensation to the airport manager for the provision of SGEIs were not established in advance. In fact, no explicit reference to any compensation to be granted by the State to the airport manager for the provision of airport services is made in the Convention. This alone suffices to conclude that the Altmark 2 criterion is not met in this case.

Giving that the four Altmark conditions are not cumulatively observed in this case, the Commission concludes that the presence of an advantage cannot be excluded on the basis of this test, even to the extent the services provided by So.Ge.A.AL would qualify as SGEIs.

Therefore, in order to be able to apply the MEOP, the Commission has to place itself at the time when each decision to provide public funds to So.Ge.A.AL was taken. Also, the Commission should in principle base its assessment of the profit-driven character of investment decisions on the information and assumptions which were at the disposal of the public authorities at the time when the decisions to provide So.Ge.A.AL with funding were taken. Point 63 of the Aviation Guidelines provides that arrangements concluded between airlines and an airport can be deemed to satisfy the MEO test when they incrementally contribute, from an ex ante perspective, to the profitability of the airport. While this criterion reflects the logic of the MEO test, it has been spelt out only recently and refers to individual arrangements rather than to the overall business, as is more often the case when applying the MEO test. Therefore, the Commission recognises that it may be difficult for the relevant Member State and for the operators concerned to provide full contemporaneous evidence in respect of arrangements concluded many years ago and will take that into account when applying the criterion at stake in the present case.

According to Italy, the overall aim of the financing of the infrastructure at Alghero airport was the development of safe and viable transport infrastructures and regional connectivity. According to Italy, regional airports have an instrumental role to play in promoting accessibility to catchment areas and the investments at issue improve airport safety, security and efficiency, whilst contributing towards the achievement of wider regional development objectives.

Besides, Italy underlines that the GDP per capita in Sardinia is, on average, much lower than in Italy, and the unemployment rate is substantially higher than the Italian average. For example, between 2003 and 2012, the average unemployment rate in Sardinia was 13,3 % compared with 7,9 % in Italy. Therefore, any increase in traffic flows arising from the development of infrastructure at Alghero airport is likely to produce associated social and economic benefits for Sardinia, in terms of both economic and social cohesion, as well as the development of the island.

Those comments are consistent with the conclusions of the Accuracy Report, which acknowledged that the development of the air transport sector in Sardinia is particularly important for the area's regional development. The Accuracy Report highlights an example of the potential magnitude of the positive economic benefits arising from developing aviation infrastructure in Sardinia. According to a study mentioned in the Accuracy Report, the development of air transport infrastructure at Cagliari Airport (based in Sardinia) led to positive economic effects of approximately EUR 140 million per year.

In addition, the only convenient mode of transport to/from Sardinia is air travel, apart from ferry services, which however involve considerably higher travel times. For example, although Sardinia is served by ferry routes from Spain and mainland Italy, the average duration of a ferry journey is in excess of nine hours.

The development of infrastructure at Alghero airport was therefore part of Sardinia's plans to improve connectivity through the development of regional airports. Accordingly, the Commission can conclude that the public funding provided for infrastructure upgrading at Alghero airport meets the clearly defined objectives of improving safe and viable transport infrastructure and regional accessibility. Therefore, the development of infrastructure at Alghero airport was in the common interest, as the investments were expected to generate positive external effects in terms of economic and social development.

Investment aid can only be declared compatible when it is necessary and proportionate to the set objective of general interest. That is in particular the case when the investment does not constitute a duplication of an existing under-utilised infrastructure.

The State aid to fund the investments at Alghero airport was required in order to increase the airport's capacity and therefore ensure its long-term viability. Before the investments were undertaken, Alghero airport's capacity was only 800 000 passengers. Alghero airport had reached capacity constraints in 2003 and 2004, and, therefore, investments were required to enable it to handle more passengers. In addition, certain improvements required to meet safety standards were implemented, which facilitated a better use of the existing airport infrastructure and thereby contributed to the regional development and connectivity of the airport's catchment area.

The investments led to an increase in the airport's capacity from 800 000 passengers in 2003 to 2 000 000 passengers in 2004. As of 2011, passenger traffic at the airport reached approximately 70 % of the airport's capacity. According to Italy, it is foreseeable that passenger traffic would have been at higher levels if the financial crisis had not occurred.

The Ecorys Report acknowledges that the development of tourism required the expansion of Alghero airport's terminal capacity in order to accommodate the anticipated growth in traffic. As mentioned above, according to the Ecorys Report, prior to the investments being undertaken at Alghero airport, the development of the tourism sector was impeded by a lack of international connectivity. Indeed, So.Ge.A.AL's business plan from 2004 predicted that total passenger numbers at the airport would increase by approximately 30 % in 2008 compared to levels prior to the expansion of the airport's capacity in 2004. This level of passenger traffic could not have been accommodated without the investments.

In addition, the new investments did not constitute a duplication of existing non-profitable infrastructure since the three closest airports are not located in the same catchment area (see recital 33). Although Alghero airport is one of three airports on Sardinia (together with Cagliari and Olbia) that serve commercial airlines, neither of the other two airports is located in the same catchment area. Olbia and Cagliari are located, respectively, 128 km and 235 km away from Alghero airport. In its 2007 Decision, the Commission concluded that Alghero airport is not substitutable with these other two airports, due to its location and the features of the transport network in Sardinia. The investments did not therefore constitute a duplication of existing non-profitable infrastructure.

The Commission can therefore conclude that the supported investments were necessary and proportional to the objectives of connectivity and regional economic development, the furtherance of which the measures at issue effectively contribute to.

The investments allowed Alghero airport to be compliant with airport safety requirements and to adapt to the transport needs of its catchment area.

So.Ge.A.AL's business plan from 2004 predicted that total passenger numbers at Alghero airport would increase by approximately 30 % in 2008 compared to levels prior to the expansion of the airport's capacity in 2004. That level of passenger traffic could not have been accommodated without the investments under assessment in this case. Later developments by and large confirm these expectations. Indeed, So.Ge.A.AL has been able to achieve a significant growth in its traffic in line with its expectations. As of 2011, passenger traffic at the airport reached approximately 70 % of the airport's capacity. According to Italy, passenger traffic would have been at higher levels if the financial crisis had not occurred.

Therefore, the Commission concludes that in the medium term, the upgraded infrastructure offered good perspectives for use.

According to the information submitted by Italy, and notwithstanding any justified price differentiation applied in individual airline agreements, the infrastructure has always been open to all potential users without discrimination.

Until 2005 Alghero qualified as category D airport as defined by point 15 of the 2005 Aviation Guidelines. The 2005 Aviation Guidelines laid down that funding to category D airports is unlikely to distort competition or affect trade to an extent contrary to the common interest. On that basis, in the 2012 Decision the Commission considered that before 2005 the aid did not affect trade to an extent contrary to the common interest. Neither Italy nor interested parties have contested this preliminary finding in the course of the investigation.

Besides, no other airport is located in the same catchment area. As shown in recital 33, the closest airport is situated more than 120 km away, in a region where road connections are mediocre, which reinforces the finding that Alghero airport is not substitutable to any significant extent by the other Sardinian airports from the passengers' perspective.

Consequently, the Commission concludes that funding granted for the upgrading of the infrastructure (including ‘fittings and works’) and equipment of Alghero airport did not distort competition to an extent contrary to the Union interests.

The Commission must also establish whether the State aid granted to Alghero airport changed the behaviour of the beneficiary undertaking in such a way that it engages in activity that contributes to the achievement of a public-interest objective that (i) it would not carry out without the aid, or (ii) it would carry out in a more restricted or different manner. In addition, the aid is considered to be proportionate only if the same result could not be reached with less aid and less distortion. This means that the amount and intensity of the aid must be limited to the minimum needed for the aided activity to take place.

In this case the investment grants mainly related to the upgrading of the aprons, runway and taxiway, as well as the terminal. Long payback periods associated with investments in infrastructure, combined with the significant complexities and risks associated with large projects, imply that there may be difficulties attracting private capital. Smaller airports, such as Alghero airport, may face particular difficulties attracting private capital at the appropriate price to be able to undertake the necessary infrastructure projects.

According to the information submitted by Italy, absent the aid these investments could not have been carried out. Indeed, in view of the financial situation of So.Ge.A.AL, which accumulated losses throughout the 2000-2010 period under investigation to an extent that required a number of capital injections by the public authorities, it is clear that So.Ge.A.AL was not in a position to contribute significantly more to the financing of these investments than it actually did and had no possibility to obtain outside funding on the market. It can therefore be considered that the aid measures at stake were necessary and proportional to the need to meet the expected demand of airlines and passengers in the catchment area.

The Commission therefore considers that the aid is limited to the minimum necessary for the aided activity to take place.

The Commission considers that should the measures under scrutiny, which provide for public support for infrastructure investments at Alghero airport, be regarded as investment aid, they are compatible with the internal market pursuant to Article 107(3)(c) of the Treaty.

The minutes of the meetings of the Board of Directors submitted by Italy in the course of the investigation demonstrate that Sardinia was informed of and consulted on the negotiation and agreed to the conclusion of contracts with the airlines operating at Alghero airport.

By way of example, the minutes of the Board of Directors of 9 March 2000 indicate that the Board of Directors unanimously approved the agreements with airlines proposed by So.Ge.A.AL. So.Ge.A.AL reported in particular on the negotiations with Volare, Ryanair, Italair, Alpi Eagles, Air Dolomiti, Azzura and Gandalf Air. As concerns Volare, it was reported that a new agreement under negotiation laid down a fixed payment of 4 550 000 per air traffic movement (‘ATM’) and EUR 3 000 per passenger for a load factor of 60 %. The minutes of the Board of Directors of 18 December 2006 demonstrate that the Board of Directors was informed of the progress of the negotiations of the 2007 agreement with Germanwings.

The consultation and agreement of the public authorities on the agreements concluded with the airlines operating at the airport was therefore not limited to Ryanair. For instance, based on the minutes of the Management Board of 10 February 2002, the start-up by French carrier Auris of a route to Paris was decided only subject to explicit agreement by the shareholders including their commitment to cover any resulting financial obligations.

The involvement of the public authorities in the decision to conclude agreements governing the operations of various carriers at Alghero airport as detailed in recitals 382 to 388 is a strong indication that the public authorities were generally involved in the conclusion of such agreements, even for carriers not mentioned in the evidence detailed in recitals 382 to 388.

The Commission considers that sufficient indications exist that the conclusion of the agreements with the airlines was incited and coordinated by the State. For example, according to the minutes of the Shareholders Assembly meeting of 5 October 2001 So.Ge.A.AL was negotiating, ‘in agreement with the shareholders’, the start-up of an important route for Sardinia, namely the Alghero–London route, and temporarily bore the resulting costs, ‘which should have been borne by the public entities’.

The minutes of the Board of Directors meetings also demonstrate that, in concluding the agreements with the airlines, the management had to take the requirements of the public authorities into account. By way of example, in the meeting of the Board of Directors of 30 July 2004 the President of the Board informed of a meeting between different regional entities on the potential development of Ryanair's activities at the airport. Assurances were required from Sardinia as concerns the financing by regional funds of the costs connected with traffic development initiatives.

The fact that, when concluding the agreements in question, So.Ge.A.AL acted under the influence of Sardinia is also evident in the 2000 ASA signed with Ryanair, which lays down that ‘So.Ge.A.AL, having interested the territory's institutional bodies, among which the Autonomous Regional government, and having received ample interest and consent regarding the initiative in question, is concluding with the aforementioned [i.e. Ryanair] for the payment of an economic contribution sufficient to cover the entire undertaking of the present Agreement’ (Preamble).

According to the minutes of the meeting of the Board of Directors of 17 July 2009 it is clear that So.Ge.A.AL considered the co-marketing contributions to Ryanair as the result of political choices at regional level. Consequently, So.Ge.A.AL considered that the required financial means had to be ensured by the regional authorities. The company also inquired on the negotiating margin with the carrier, if any, ‘given that So.Ge.A.AL's shareholders had not given the Board a mandate to terminate the agreement with the airline’.

In the course of the investigation Ryanair claimed that the public authorities' interference in the decisional process of So.Ge.A.AL would have been insufficiently proven by the Commission. The circumstance that ‘So.Ge.A.AL and Sardinia signed agreements in 2004, 2005, 2006 and 2007 for co-marketing contributions’ would only support the position that Sardinia was financing So.Ge.A.AL, but not that it was directing So.Ge.A.AL's action towards Ryanair or AMS.

The Commission cannot accept Ryanair's argument. First, as mentioned in recital 384, in the course of the investigation Italy explicitly confirmed that the conclusion of the agreements with the airlines was an integral part of Sardinia's strategy to increase tourist flows to and from the island. The references to the discussions between So.Ge.A.AL and its public shareholders underlying the regional and economic development objective pursued by RAS in respect of the agreements concluded by So.Ge.A.AL with carriers operating at Alghero airport show that So.Ge.A.AL implemented regional policies within the instructions and guidelines received from the public entities.

Therefore, the Commission concludes that the agreements entered into by So.Ge.A.AL and various carriers operating at Alghero airport and which are subject to the formal investigation procedure are imputable to the State.

• the price charged for the airport services corresponds to the market price, or

• it can be demonstrated through an ex ante analysis, namely an analysis based on the data which would have been available at the moment the measures in question were decided, that the airport/airline arrangement could be expected to lead to a positive incremental profit contribution for the airport100.

It is worth noting in this sense that in general the application of the MEOP in reference to an average price observed on comparable markets may be reliable to the extent a market price may be identified or deducted from other market indicators. However, that method is in general unreliable in the case of airport services. Indeed, the structure of costs and revenues tend to differ quite significantly from one airport to another. Those costs and revenues depend on the development of the airport, the state of the airport infrastructure, the number or aid carriers operating at the airport, the airport's capacity, the regulatory framework at national level, which may be different from one Member State to another, as well as the deficits and obligations incurred by the airport in the past.

Moreover, the liberalisation of the air transport market complicates any purely comparative analysis. As can be seen in this case, commercial practices between airports and airlines are not always based exclusively on a published schedule of charges. Rather, these commercial relations are very varied. They include sharing risks with regard to passenger traffic and any related commercial and financial liability, standard incentive schemes and adapting the spread of risks during the term of the agreements. Consequently, one transaction cannot easily be compared with another based on a turnaround price or price per passenger.

[…] is ultimately owned by […], which is in turn owned by various local authorities from the […] area. Ryanair noted that […]'s annual reports do not provide any indication of State funding, and that the airport has made profits every year since at least […]. Ryanair's operations at […] Airport started in […]. The airport has consistently been privately owned, which in Ryanair's view would suggest that the airport can be used as a comparator in the application of the MEO test.

According to Ryanair, the results from comparing the data on charges paid by Ryanair at Alghero airport with charges at comparable airports are mixed. If it is assumed that no municipal tax is returned to the region, the charges payable by Ryanair at Alghero airport are, on average, lower than those at comparators on both a per-passenger and a per-aircraft basis. However, if it is assumed that a proportion of the municipal tax — specifically, 66 %, based on information provided by Ryanair — is returned to the region, average charges paid by Ryanair at Alghero airport are higher than at those paid at […] Airport, although still lower than those paid at […] Airport. Ryanair suggests that this could be partly explained by the lower GDP in Sardinia, compared with the GDP in […] and […].

Hence, Ryanair acknowledges that the results from the comparison of charges paid by Ryanair at Alghero airport with those paid at […] Airports are mixed and that the differences in the results may be due to a number of reasons, such as the choice of comparator airports.

The Commission agrees that a benchmarking of airport charges cannot be excluded outright as a possible approach to assess the presence of aid to airlines. However, the identification of a benchmark requires that a sufficient number of comparable airports providing comparable services under normal market conditions can be selected. According to paragraph 54 of the 2014 Aviation Guidelines, an appropriate benchmark among airports whose managers behave as MEO has to be identified on the basis of available and relevant market prices. This benchmark should take into account indicators such as traffic volumes, type of traffic, the importance of freight and the relative importance of revenue stemming from the non-aeronautical activities of the airport, type and level of airport services provided, proximity of the airport to a large city, number of inhabitants in the catchment area of the airport, prosperity of the surrounding area (GDP per capita), and the different geographical areas from which passengers could be attracted.

In that respect the Commission notes that, even if some airports are privately owned or managed without social or regional considerations, the prices charged by these airports might be strongly influenced by the prices charged by other publicly subsidized airport managers as these latter prices are taken into account by airlines during their negotiations with the privately owned or managed airports.

In this case, the Commission notes that Ryanair itself considered that as Alghero airport is located on an island, with not many large cities or airports in proximity, it is difficult to find comparators with nearly identical characteristics. Ryanair further noted that the mixed results of the benchmarking exercise could be explained by the difference in GDP in Sardinia, compared with the GDP in the areas where potential comparator airports are located.

Finally, the Commission notes that even if reliable comparators were available, a benchmarking exercise would in any event not have been possible in the present case. Indeed, the arrangements under investigation include airport services and marketing agreements which lay down different ‘prices’, namely different airport charges, handling charges and the marketing fees. Some of those charges depend on the number of passengers, some on the number of turnarounds, whilst others are fixed. Therefore each of those agreements imply complex financial flows between the airport manager and the airlines (and their subsidiaries) operating at the airport, namely airport charges, handling fees and marketing fees.

Therefore the Commission considers that a comparison between the airport charges charged by So.Ge.A.AL to the airlines operating at Alghero airport with the airport charges payable at comparator airports would not provide any useful indication for the purpose of applying the MEOP. In order for such a benchmarking exercise to produce reliable results, it would be necessary that at least comparable arrangements are found at the comparator airports, which should include in particular similar marketing payments and handling fees. Given the specificity and complexity of the arrangements at stake, the Commission considers that such benchmarking exercise cannot be carried out, notably also given that the prices charged for handling services and marketing services are rarely made public and would therefore not be readily available for the purpose of such exercise. Neither has Ryanair provided such data for the two comparators.

In any event, even if it would be assumed that a benchmarking exercise could be carried out with similar arrangements in force at comparable airports, which would lead the Commission to conclude that the ‘prices’ in question are equivalent or even superior to the ‘market price’, the Commission could not conclude on this basis that the arrangements under investigation are market-conform if it would turn out that at the moment the arrangements in question were entered into by the airport manager, the later could have reasonably expected that they would result in incremental costs in excess of incremental revenues. Indeed, a MEO would not have had any interest in offering its goods or services at ‘market price’ if this was expected to result in incremental losses.

Therefore the Commission considers that the airline arrangements at airports put forward by Ryanair as allegedly relevant comparators cannot constitute an appropriate benchmark to establish the market price for services provided by So.Ge.A.AL to the different airlines at Alghero airport. In the absence of an identifiable market benchmark, the Commission considers that the ex ante incremental profitability analysis is the relevant criterion for the assessment of arrangements concluded by the airport with individual airlines.

The expected incremental revenues must include in particular the revenues from airport charges, taking into account the discounts as well as the traffic expected to be generated by the agreement, and the non-aeronautical revenues expected to be generated by the additional traffic. The expected incremental costs must include in particular all the incremental operating and investment costs that would not be incurred absent the agreement such as incremental personnel, equipment and investment costs induced by the presence of the airline at the airport as well as the costs of the marketing grants and other financial incentives. On the contrary, costs which the airport would have to incur anyway independently from the arrangement with the airline should not be taken into account in the MEOP assessment.

Besides, the Commission notes that the agreements concluded by So.Ge.A.AL with the airlines operating at the airport were part of the long term strategy of the airport. It is evident from So.Ge.A.AL's business plans (see recitals 59-75) that it relied on low-costs airlines as major growth driver and that it was expected to reverse previous declines and return to viability once it was awarded the comprehensive concession for the management of Alghero airport. Therefore, the condition mentioned at recital 399 is satisfied by all contracts under assessment. It results from all that precedes that for each agreement under investigation, if it can be established that at the time when it was concluded, a MEO guided by profitability prospects and acting in lieu of So.Ge.A.AL could have expected the future incremental costs to be generated by the agreement to be offset by future incremental revenues, then this agreement complies with the MEOP and does not constitute State aid.

In the 2012 Decision, the Commission considered that for the purpose of application of the MEOP, the ASAs with Ryanair and the marketing services agreements with Ryanair and AMS and their financial consequences had to be assessed together as one single measure. Ryanair did not dispute that the marketing agreements concluded directly between Ryanair and So.Ge.A.AL in 2002 and 2003 should be assessed together with the 2002 and 2003 ASAs.

However, Ryanair rejected the preliminary conclusion of the Commission that Ryanair and AMS must be considered as a single entity and a given ASA entered into by So.Ge.A.AL and Ryanair, and a marketing service agreement entered into by So.Ge.A.AL and AMS at the same time should be assessed jointly for the purpose of assessment of the existence of an economic advantage. According to Ryanair, the ASAs concluded with Ryanair and the marketing services agreements concluded with AMS would be separate and independent, they would relate to different services and would not be subject to any contractual or other link between them justifying their consideration as a single set of measures. That view was supported by AMS.

In that sense, the Commission notes that there are several indications clearly pointing towards the fact that the agreements are to be evaluated as one single measure since they were concluded within the framework of a single transaction.

1. (a)

   For the purpose of the application of State aid rules, AMS and Ryanair are considered to be a single undertaking, in the sense that AMS acts in the interest and under the control of Ryanair. For the present agreements, this can also be inferred from the fact that the respective marketing agreement states in its preamble that ‘AMS has the exclusive license to offer marketing services on the travel website www.ryanair.com, the website of the Irish low fares airline Ryanair.’ Therefore, if So.Ge.A.AL intended to promote a Ryanair destination and the surrounding regions, then this can only be done via AMS;

2. (b)

   The respective agreements in all cases were concluded on the same dates.

Second, the preambles of the 2006 and 2010 marketing agreements with AMS state that the ‘website www.ryanair.com provides a unique opportunity for targeting millions of potential Ryanair passengers and presents extensive information about airports, cities and regions that Ryanair operates to’. This indicates that the purpose of the marketing agreement is not generally to promote Sardinia, but more specifically to maximise ticket sales for the Ryanair destination Alghero. Indeed, the preambles state that So.Ge.A.AL is to target Ryanair passengers in order to promote tourism and business opportunities in the region, and in particular Alghero airport as a destination.

Third, the marketing agreements with AMS state in their first section, entitled ‘Purpose of the Agreement’, that they are ‘rooted in the Ryanair's commitment to operate on routes between Alghero and EU destinations’ (the 2006 agreement mentions London-Stansted, Barcelona Gerona, Frankfurt Hahn, Pisa, Liverpool and Rome). This wording establishes an unambiguous direct link between the airport service agreements and the marketing agreements in the sense that one would not have been concluded without the other. The marketing agreements are based on the conclusion of the airport services agreements and the services provided by Ryanair.

Fourth, the marketing agreements state in their preamble that So.Ge.A.AL has decided to ‘actively promote the city of Alghero and the region as a holiday destination for international air travellers and also as an attractive business centre.’ This is an indication that the conclusion of the marketing agreements has as its primary and specific purpose to promote specifically Alghero airport and the surrounding region and is therefore linked to the conclusion of the airport services agreement by Ryanair.

Fifth, the marketing agreements can be terminated immediately by So.Ge.A.AL in the event that Ryanair stops operating the abovementioned routes. This demonstrates again that the marketing agreements and the ASAs are inseparably linked.

Finally, the Commission notes that it is clear from the analysis of So.Ge.A.AL's 2000 annual report that the marketing support had been asked by Ryanair as a condition for the operation of the London route at the time the 2000 ASA was entered into. This reading is also confirmed by the fact that the marketing support costs were considered by So.Ge.A.AL an operational cost of the Ryanair route, rather than an investment in brand development as claimed by Ryanair and AMS.

In conclusion, the marketing service agreements concluded by So.Ge.A.AL and AMS are indivisibly linked to the ASAs signed by Ryanair and So.Ge.A.AL. The considerations in recitals 421 to 426 demonstrate that without the ASAs, the marketing services agreements would not have been concluded. For those reasons, the Commission concludes that the ASAs and the marketing services agreements are not severable and therefore finds it necessary to analyse each marketing service agreement together with the ASA that was concluded at the same time, with a view to determining whether such a transaction constitutes State aid.

When analysing the measures in question, it is necessary to examine the benefits that this hypothetical MEO, motivated by the prospect of profits, could gain from purchasing marketing services. This analysis should not take into account the general impact of such services on tourism and the region's economic performance. Only the impact of those services on the airport's profitability should be taken into account, as this would be the only concern for a hypothetical MEO.

Marketing services have in principle the potential to stimulate passenger traffic on the air routes covered by marketing service agreements and the ASAs, as the marketing services are designed to promote those air routes. Although this impact will mainly benefit the airline concerned, it may also be of benefit to the airport manager. In addition, an increase in passenger traffic may lead to an increase in revenues generated by certain airport charges for the airport manager, as well as an increase in non-aeronautical revenues, in particular from car parks, restaurants and other businesses located at the airport, and whose turnover fully or partly accrue to the airport manager.

The Commission agrees with Ryanair on this issue, namely that marketing service agreements do not just generate costs for the airport manager, they can also be expected to bring benefits with them.

In addition, it has to be determined whether other benefits such as brand image could reasonably be expected and quantified for a hypothetical MEO operating Alghero airport, that is to say, other than the benefits from the positive effect on passenger traffic on the air routes covered by the marketing service agreement during the term of operation of these routes, as set out in the marketing service agreement or the airport service agreement.

Ryanair supports this argument, in particular in its study of 17 January 2014. The study is based on the theory that marketing services acquired by an airport manager will help to improve the airport's brand image and, as a result, to sustainably increase the number of passengers using this airport and not just the numbers on the air routes covered by the marketing service agreement and the airport service agreement for the term of operation set out in these agreements. In particular, Ryanair argued in its study that these marketing services will have sustainable positive effects on passenger traffic in the airport even after the marketing service agreement has expired. This view is shared by Italy and the benefits of the marketing services have been taken into consideration in the reconstructed ex ante profitability analysis of the agreements with Ryanair as summarised in Table 8 below.

It should first be noted that there is nothing to suggest that, when the marketing service agreements covered by the formal investigation procedure were entered into, the airport manager or RAS ever considered, still less quantified, the marketing service agreements' possible beneficial effects on air routes additional to those covered by the agreements, or the possibility of such effects continuing after the agreements had expired.

In addition, the sustainable nature of those effects cannot be assessed based on the information available. It is possible that advertising Alghero airport and the Sardinian region on Ryanair's internet site may have encouraged people visiting this site to buy Ryanair tickets to Alghero airport as long as the advertising was posted or just thereafter. However, it is highly unlikely that the effect of this advertising on visitors lasted or had an influence on plane ticket purchases for more than a few weeks after its being posted on the Ryanair internet site. An advertising campaign is more likely to have a sustainable effect when the promotional activities involve one or more advertising media to which the consumers are regularly exposed over a given period. For example, an advertising campaign involving general TV and radio stations, popular internet sites and/or various advertising posters displayed outside or inside public places could have a sustainable effect if consumers are regularly exposed to these media. However, promotional activities limited to just Ryanair's internet site are highly unlikely to have an effect that lasts much past the end of the promotion.

In fact, it is very likely that most people do not visit Ryanair's internet site frequently enough for the advertising there alone to leave them with a clear recollection of the region concerned. This argument is well supported by two factors. Firstly, under the terms of the marketing service agreements, the promotion of Alghero and the Sardinian region on the homepage of the Ryanair internet site was limited to one paragraph of 150 words under ‘Top Five Things To Do’ on the Alghero destination page and the presence of a link on the www.ryanair.com homepage leading to a site made available by So.Ge.A.AL. The Commission considers that the type of promotional activities (a simple link with a limited marketing value) severely reduced the effect of these activities after the end of the promotion, in particular as these activities were limited to just the Ryanair internet site and were not supported by any other media. Secondly, the marketing activities set out in the agreements entered into with AMS largely related to the internet page for the destination of Alghero airport. It is very likely that most people do not visit this page often; if and when they do, it is probably only because they are already interested in this destination.

Thus, even if the marketing services did increase passenger traffic on the air routes covered by the marketing service agreements for their period of implementation, it is very likely that this effect was zero or negligible after this term.

It also follows from the Ryanair studies of 17 and 31 January 2014 that the generation of benefits going beyond the air routes covered by these agreements or lasting after the term of operation for these routes, as set out in the marketing service agreements and airport service agreements, was extremely uncertain and could not be quantified with a degree of reliability that would be considered sufficient by a prudent MEO.

Thus, for example, according to the study of 17 January 2014, ‘future incremental profits beyond the scheduled expiry of the airport service agreement are inherently uncertain’. Moreover, this study suggests two methods for evaluating a priori the positive effects of marketing service agreements: a ‘cash flow’ methodology and a ‘capitalisation’ methodology.

The ‘cash flow’ methodology involves evaluating the benefits of marketing service agreements and airport service agreements by assessing the future revenues which may be generated by the airport manager through marketing services and the airport service agreement, minus corresponding costs. In the ‘capitalisation’ methodology, improvement of the brand image of the airport through marketing services is treated as an intangible asset, acquired for the price laid down in the marketing service agreements.

However, the study of 17 January 2014 highlights the major difficulties presented by the ‘capitalisation’ approach and shows that the results produced by this method may be unreliable; it suggests that the ‘cash flow’ approach would be better. In particular, the study finds that ‘the capitalisation approach should only take into account the proportion of marketing expenditure that is attributable to the intangible asset base of an airport. However, it may be difficult to identify the proportion of marketing expenditure that is targeted towards generating expected future revenues for the airport (namely an investment in the intangible asset base of the airport) as opposed to generating current revenues for the airport.’ It also stresses that ‘in order to implement the capitalisation-based approach, it is necessary to estimate the average length of time that an airport would be able to retain a customer due to the AMS marketing campaign. In practice, it would be very difficult to estimate the average period of customer retention following an AMS campaign due to insufficient data.’

The study of 31 January 2014 proposes a practical application of the ‘cash flow’ approach. Under this approach, the benefits of marketing service agreements and airport service agreements which last even after the marketing service agreement has expired are expressed as a ‘terminal value’ that is calculated on the agreement's expiry date. The terminal value is calculated from the airport's incremental profits (net of AMS payments) in the last year of the ASA, adjusted to take into account the growth rate for the air transport market in Europe and the probability factor designed to reflect the airport service agreement's and marketing service agreement's capacities to contribute to the airport's profits after they have expired. The same method of calculating the ‘terminal value’ has been proposed by Italy in the 2014 MEOP report (see recital 471).

According to the study of 31 January 2014, the capacity for producing lasting benefits depends on various factors ‘including greater prominence and a stronger brand, alongside network externalities and repeat passengers’, although no details are given about these factors.

The study of 31 January 2014 suggests a probability factor of 30 %, which it considers prudent. However, the study does not provide any serious evidence for this factor, neither quantitatively nor qualitatively. It does not base itself on any facts relating to Ryanair's activities, air transport markets or airport services to substantiate this rate of 30 %. It does not establish any link between this rate and the factors that it mentions in passing (prominence, strong brand, network externalities and repeat passengers) and that are supposed to extend the benefits of the airport service agreement and market service agreement beyond their expiry dates. Finally, it does not in any way base itself on the specific content of marketing services provided for in the various agreements with AMS when analysing to what extent these services could influence the factors mentioned in recital 444.

Moreover, it does not prove that there is any likelihood that, on expiry of the ASA and the marketing service agreement, the profits generated by those agreements for the airport manager in the final year of their application will continue in the future. Likewise, it provides no evidence that the growth rate of the air transport market in Europe is a useful indicator for measuring the impact of an airport service agreement and a marketing service agreement for a given airport.

A ‘terminal value’ calculated using the method suggested by Ryanair and Italy would therefore be highly unlikely to be taken into account by a prudent MEO when deciding whether or not to enter into an agreement. The study of 31 January 2014 therefore shows that a ‘cash flow’ approach would only lead to very uncertain and unreliable results, as would the ‘capitalisation’ method.

Moreover, the marketing services clearly target persons likely to use the route covered by the marketing service agreement. If this route is not renewed on expiry of the airport service agreement, it is unlikely that marketing services will continue to have a positive effect on passenger traffic at the airport after the expiry date. It is very difficult for an airport manager to assess the likelihood of an airline continuing to run a route on expiry of the term to which it has committed itself in the airport service agreement. Low-cost airlines, in particular, have shown that, when it comes to opening and closing routes, they are very responsive to market conditions which, more often than not, change very quickly. For instance, in the present case Italy submitted that Germanwings decided to stop operations from Alghero airport after only one year and therefore its agreement with So.Ge.A.AL did not run its full duration (the carrier had concluded a three-year agreement with the airport) as it could not generate sufficient traffic to break even. It also results from the documents in the case file that Ryanair had at least once (in 2009) re-evaluated its operations from Alghero airport. Therefore, when entering into a transaction such as the one being examined in this case, a prudent MEO would not rely on an airline company extending the operation of the route in question on expiry of the agreement.

Last but not least, the Commission notes that this approach of including a ‘terminal value’ followed by Italy in the reconstruction of the ex ante profitability analysis of the 2006 and 2010 agreements, has not been applied by Italy when considering the profitability of agreements signed with other airlines operating at the airport, although marketing agreements have been concluded with the airport manager. Italy's argumentation on this point relies on the fact that the number of potential visitors to the websites of airlines other than Ryanair is significantly lower than the audience of ryanair.com. Given this far lower popularity, it would not be relevant to quantify a terminal value in the analysis of the profitability of the agreements with other airlines. Nevertheless, the Commission notes that up to 2006 marketing agreements had been signed by So.Ge.A.AL with Ryanair rather than AMS. A terminal value has not been considered to account for the future benefits derived after the end of the term of the marketing agreements concluded by So.Ge.A.AL with Ryanair in 2002 and 2003.

To conclude, it is clear from recitals 428 to 449 that the only benefit that a prudent MEO would expect from a marketing service agreement, and which it would quantify when deciding on whether or not to enter into such an agreement, together with an airport service agreement, would be that the marketing services would have a positive effect on the number of passengers using the routes covered by the agreements in question for the term of operation of these routes, as set out in the agreements. The Commission considers that any other possible benefits are too uncertain to be quantified and taken into account.

In view of the considerations in recitals 398 to 450, for the purpose of application of the MEOP principle, the Commission must (i) analyse each of the ASAs jointly with the marketing agreements if there is one, including when such agreement was signed with AMS, and (ii) determine the incremental costs and revenues that could have reasonably been expected from each joint transaction, taking into account the effect of the marketing agreements on the expected load factors.

As of 2005 Alghero airport qualified as a category C regional airport pursuant to the 2005 Aviation Guidelines. The aid was granted to airlines opening new routes from Alghero airport to other airports located in the Union. The second condition is thus observed.

The aid was granted to encourage airlines to launch new routes from Alghero airport to one or more Union destinations, thereby leading to an increase in the net volume of passengers. There is no other airport in the same city or conurbation. In addition, none of the routes in question was served by a high-speed rail service. The third condition set forth by the 2005 Aviation Guidelines is thus fulfilled.

Aid to Germanwings and Meridiana was limited to the duration of the agreements concluded with So.Ge.A.AL, namely one and three years respectively However, no condition was imposed in the agreements by which the routes operated by the carriers from Alghero airport had to be ultimately profitable on a stand-alone basis. The Commission further notes that, while the amount of aid received by Germanwings as listed in Table 19 was degressive, Germanwings ceased operations at Alghero airport in 2007 and therefore never operated without public funding.

Eligible costs are defined in the 2005 Aviation Guidelines as the ‘additional start-up costs incurred in launching the new route or frequency […] which the air operator will not have to bear once it is up and running’. Italy has not claimed that the financing to Germanwings and Meridiana was limited to cover eligible costs and that regular operating costs would not be subsidised. This condition is therefore not complied with.

The agreements with the airlines in question make no reference to the costs of the airlines and do not lay down that the aid must be limited to a certain percentage of the eligible costs. The Commission therefore finds that this condition is not fulfilled.

The Commission notes that no condition was imposed that the routes opened by the carriers be viable after the period when their operation is subsidised.

The Commission notes that there is a clear link between the number of passengers carried and the amount of aid. In particular, the agreements with Germanwings and Meridiana set out success fees to be paid by So.Ge.A.AL if the airlines met the stipulated traffic targets.

In the course of the investigation Italy claimed that the airport's intention to conclude agreements with airlines interested in opening new routes departing from Alghero airport had been sufficiently advertised among the potential interested carriers. However, no evidence was provided in that respect. In particular, no indication exists that Alghero airport made its intention to grant aid to the airlines, and the conditions of the granting of such aid, known in good time and with adequate publicity. The procedure for selection of the air carriers was therefore not sufficiently clear to ensure the non-discriminatory treatment of applicants of interested carriers.

Neither Italy nor interested parties have provided evidence in the investigation that carriers had to provide a business plan for the routes in question beforehand to demonstrate the viability of the route in question on a standalone basis after a certain period. Neither has So.Ge.A.AL claimed to have carried out an assessment of the impact of the new routes in question on other routes. This condition is therefore not observed.

There is no indication that Alghero airport published yearly the list of routes receiving public financing, indicating the source of financing, the air carrier, the amount of aid actually paid and the number of passengers carried. This condition is therefore not complied with.

Italy has not claimed that appeal procedures were in place to deal with complaints regarding the granting of the aid to carriers operating routes from Alghero airport. This condition is therefore not observed.

The Commission notes that the agreements with the carriers lay down a system of penalties in case the airlines to not observe the traffic targets stipulated therein. This condition is thus fulfilled.

Italy confirmed that the aid in question was not granted for the start-up of routes subject to PSOs under Regulation (EC) No 1008/2008. However, Italy has not confirmed that the aid was not combined with other aid to cover the same costs.

Therefore, the aid to the airlines cannot be found to constitute compatible start-up aid under the 2005 Aviation Guidelines. The State aid implemented for Meridiana and Germanwings therefore constitutes unlawful and incompatible State aid that must be recovered.