AER COMMITTEE C ‘REGIONAL POLICIES’ PLENARY SESSION

1. AER COMMITTEE C ‘REGIONAL POLICIES’ PLENARY SESSION “Common lines for the AER and FARE responses to the EC draft guidelines on regional airports“ FARE - Forum of European Regional Airports Ms. Gina Giani - Representing Mr. Pier Giorgio Ballini, FARE Chairman Ponta Delgada, 6 May 2005

2. ABOUT FARE

3. What FARE is In Stansted (UK), on 2ndFebruary 2005, the Forum of European Regional Airports (FARE) was officially constituted by the General Assembly attended by 32 Regional Airports of the European Union. The Executive Committee of FARE signed the By-Laws on the 1st April 2005.

4. Executive Committee of FARE

5. FARE Member Airports •  Aarhus (Denmark); • Alghero (Italy); •  Bale – Mulhouse (France); •  Beauvais (France); •  Bergerac (France); •  Brest (France); •  Charleroi (Belgium); •  Catania (Italy); • Eindhoven (Nederland); • Esbjerg (Denmark) • Forlì (Italy); • Knock (Ireland) •  Limoges (France); •  Malmo (Sweden); •  Montpellier (France); • Niederrhein (Germany); • Nimes (France); • Olbia (Italy); •  Pau (France); •  Pisa (Italy); •  Poitiers (France); •  Prestwick (Scotland); •  Rodez (France); •  Tours Val de Loire (France); •  Trapani (Italy); •  Treviso (Italy); •  Verona (Italy); •  Ancona (Italy); •  Bergamo (Italy); •  Bournemouth (England); •  Crotone (Italy); •  Hahn (Germany); •  Lamezia Terme(Italy); •  Trieste (Italy).

6. FARE Mission The aim of FARE is to represent and promote the interests of European Regional Airports. Regional Airport: much more than smaller airport → a strategic tool for the development of the region it serves.

7. FARE History The idea to create an association focused on European regional airports was born when a group of 26 European Regional Airports met in Brussels, after the EU Commission Decision on the Ryanair/Walloon Region/ Charleroi Brussels South Airport case on 12 February 2004, to discuss how to defend and represent their interests and those of their respective communities towards the European Commission. During the second FARE meeting, held in Pisa on 14th May 2004, 32 European regional airports approved the first FARE Position Paper, containing a set of recommendations for the E. U. Commission on the subject of the still to be issued Aviation. Guidelines, and decided to take all necessary actions in order to formally constitute FARE as the Association of European Regional Airports. The support of the Assembly of European Region was very important in the start up phase of our Associations.

8. FARE Logo

9. FARE Web Site www.forumfare.com www.forumfare.com

10. FARE and ARE cooperation From the joint letter sent to Jacques Barrot , Transports Commissioner Objet : Réaction du Forum européen des aéroports régionaux et de l’Assemblée des Régions d’Europe au projet de lignes directrices communautaires sur le financement des aéroports – Demande de rendez-vous. “…..ARE et FARE sont convaincus du rôle clef que jouent ces aéroports pour le développement durable des régions, et la cohésion économique, sociale et territoriale au sein de l’Union. Les premières réactions aux lignes directrices que vous trouvez jointes à ce courrier reflètent cette conviction commune. Elles soulignent également la position particulière dans laquelle se trouvent les aéroports régionaux par rapport aux grands «hubs» internationaux, et la nécessité, pour les lignes directrices, de reconnaître cette spécificité en adoptant un approche flexible quant à l’application des règles en matière d’aides d’Etat. FARE et l’ARE font notamment des propositions concrètes relatives aux suggestions concernant les aides au démarrage contenues dans le projet de lignes directrices…..“

11. FARE ANALYSYS ON THE “MEMORANDUM TO THE COMMISSION: COMMUNITY GUIDELINES ON FINANCING OF AIRPORTS AND START UP AID TO AIRLINES DEPARTING FROM REGIONAL AIRPORTS”

12. General Considerations No natural Monopoly for Regional Airport “FARE welcomes the fact that the Draft Guidelines now acknowledge the specific conditions of small and medium–small airports, i.e. the regional airports, in this increasingly competitive environment. However, as the draft Guidelines still maintain that there is still the possibility of a distortion of the common market which requires and justifies specific regulatory activities, for the financing of airport and for “start up aid” to airlines departing from regional airports, FARE points out that the traditional assumption of airports being natural monopolies has to be urgently rectified under the changed circumstances. The lower traffic volumes, the widely overlapping catchement areas, the higher difficulties in attracting airlines to operate services to/from regional markets have lead to such a high level of competition that no regional airport is allowed to act as a monopoly, if it wants to survive”.

13. General Considerations The risk of rigid guidelines “FARE reminds the E.U. Commission that over the last few years, thanks to the partnership with airlines – in most cases low cost carriers - a number of regional airports have shown their flexibility and their ability to adapt to a very tough environment. Through the deals they have negotiated with low cost airlines they have succeeded in creating traffic growth and economic benefits for themselves and their communities. Should these deals be endangered by rigid Guidelines, these regional airports would simply lose their air services and their traffic, as airlines would employ their fleets elsewhere between locations of higher strategic value, higher population and lower economic risk. Ultimately the EU consumer, i.e. the EU citizen, who has enthusiastically incorporated in his/her lifestyle low cost air travel, would suffer loss of services and higher fares”.

14. General Considerations As the Economist ( 29th January 2005, p.41) recently stated : “It is not just traveller who feels the benefits. Entire regional economies have felt the impact: the city of Carcassonne in South West France reckons that 235.000 passengers who arrive every year on low cost airlines have created over 270 m euros of extra economic activity. (…) The conditions for Europe’s airlines upheaval were created by EU legislation through a succession of liberalization packages, the Commission broke the power of national flag carriers to monopolise routes between and within European countries. (…) By allowing newcomers to enter the market, Brussels has achieved that rare thing: an unambiguous triumph both for the European consumer and for the ideal “ever closer union” in Europe”.

15. General Considerations MEIP FARE generally welcomes the application of the Private Investor Principle in determining whether there is state aid or not. If the private investor test is successfully passed, this excludes by definition any kind of state aid and therefore any need for a regulation being imposed by the Commission relating to Art. 87.The focus has to be on whether, taking into consideration all circumstances as the case may be, the airport had acted like a private entrepreneur including its long term strategic reasoning and risk taking. FARE points out that a narrow treatment of the Private Investor Principle (MEIP) would be misplaced, as the Private Investor Principle (MEIP) has to involve an appropriate level of entrepreneurship and risk taking . Whenever an airline – be it a low cost or a legacy carrier – opens a new service to a new destination the risk is always very high, particularly when the scheduled service is operated from a small airport, which needs to put itself “on the map”, that is to place itself as a departure/destination point in the mind of the EU Consumer.

16. General Considerations MEIP It is true that when a low cost airline opens a base in a cat. D airport, both the airport and the airline take substantial risks. On the other hand, also the lack of entrepreneurship from some complainants (be they large airports or traditional airlines) has to be evaluated by the Commission, within the Private Investors Principle. Some Complainants simply might have been complacent, too expensive, not competitive enough, or they might simply have adopted the wrong strategy. By the Private Investor Principle (MEIP), not all companies succeed, in business; some companies succeed simply because they are better than others, and they do not necessarily have to be the bigger ones.

17. 4. Scope of Application and Common Compatibility rules - MEIP Par. 33 - Guidelines “If this financial advantages are similar to investments planned by a private investor acting in a market economy, they will not constitute aid and will not be covered by these Guidelines”. • FARE generally welcomes the application of the Private Investor Principle (MEIP). • If the Private Investor (MEIP) Test is successfully passed, this excludes by definition any kind of state aid and therefore any need for a regulation being imposed by the Commission concerning Art. 87. • The MEIP principle is the key standard in determining whether there is State aid or not, and the Guidelines should avoid its narrow treatment and take into due consideration the role of risk taking and entrepreneurship. • Airports are long term business undertakings, with return on financial investments as long as 20 years or more. An investor may have a return on investments over a medium-long period. • It must be made clear in the Guidelines that publicly owned but self-financing airports are free to conduct business under the same conditions as for a private entity in a competitive market. In their current form, the Draft Guidelines may not provide enough guidance and legal certainty to avoid a flood of legal challenges from competing airports and airlines

18. 1 - Introduction “Aid” or marketing tool? With reference to points 1.1 (Background) and 1.2. (Low cost companies), FARE welcomes the acknowledgement that low cost carriers and regional airports over the last years have generated “two major developments on the European Air Transport market in recent years” (1.1.5). However (1.2.7) the Draft Guidelines state “The negotiating methods used by low cost airlines to obtain aid from public authorities, whether directly of through the airport manager, have raised a number of questions regarding the application of competition rules, under the EC Treaty and have been the subject of several complaints made to the Commission.”. The Draft Guidelines do not acknowledge the partnership between regional airports and/or Regions, with airlines willing to undertake service commitments to regional markets - be they low cost or not. These Draft Guidelines still use the term “aid” to define an innovative marketing tool, i.e. the effective promotion of the airport and of the community it serves by means of service agreements with airlines, based on the achievement of target passenger traffic levels.

19. 1 - Introduction “It is no wonder that because of the great success of this partnership, other players, which had simply not included the presence of regional airports and regional markets in their equations, have been filing complaints to the EU Commission. For them, due to their very high operative costs basis, international air services to regional markets, and consequently to regional airports, were simply not economically viable, irrespective of the offers in many cases received from regional airports and/or regional authorities. Moreover, FARE draws the attention of the Commission on the fact that flag carriers have enjoyed partnership agreements ( but they should rather be called preferential deals, in most cases) with large airports, particularly their respective hubs, and that such agreements were allowed to be highly confidential.”

20. 1 - Introduction The need of flexibility “For all the above considerations, FARE strongly recommend the Commission to adopt highly flexible guidelines on the subject of “start up aid to airlines departing from regional airports”, in order to enable the many EU Regions and their Airports to develop the maximum level of air service for their communities, with those very few airlines that are willing to accept the high risk to develop new routes and new markets, in most cases underserved, or altogether abandoned, by those legacy air carriers that are filing complaints against the successful alliances between Regions, Regional Airports and Low Cost Carriers. FARE is ready to provide the Commission with a number of case studies as evidence of the above”.

21. 6.1. Objectives 84. FARE agrees on the following Guidelines statement “Like the traditional companies, which generally resort to well known airports, low cost companies are not always prepared, without appropriate incentives, to run the risk of opening routes from unknown or untested airports”. In fact, the number of air carriers willing to serve type C-D regional airports is very limited, because they perceive a much higher risk in opening a new route from a small airports than in competing with other carriers on an existing one, from/to a large (cat . AB) airport. Therefore the level of risk sharing sustained by the airport and/or of its region for such new scheduled flights, and that will be considered acceptable by the airline to start up the new air service cannot be fixed by rigid parameters. Each airport and the market it serves is different and the airline/airport negotiation on the extent of the risk sharing is actually carried out on a case-by-case basis. The Committee of the Regions recommends: “The Guidelines should not contain strict or rigidly applied thresholds, instead allowing regional and local authorities to consider the merits of public-sector investment on a case-by-case basis. (…)”(1) In this sense, should fixed, rigid parameters be introduced, all those regional markets whose start up “risk level” is perceived by the airlines ( the airport customers) as higher will simply lose their services. So they’ll be back to the pre low cost era, and again, the weakest components of the Trans European Airport Network – together with their communities – will be those who will suffer more. (1) C.d.R. own initiative opinion: 7thJuly 2004

22. 3 – Types of Airports “FARE wishes to draw the attention of the Commission on the fact that the airports in cat. C (1-5 million passengers) can have a significantly different weight, in terms of “market value” for the airline. In a deregulated market, an airline flies to an a certain airport only because this infrastructure gives access to a certain market, in terms of demand for air transportation to a destination, at a certain level of price, and the airline estimates it can make a profit out of the operation of that route from that market. Therefore, the characteristics of its specific market (potential travel demand and expected yields) determine the level of attractiveness of a certain airport to airlines. In this sense, a consolidated “market” of five million passengers per year is perceived by the airlines as significantly more attractive then a 1 million passenger one. Therefore, also the leverage in the negotiating process with airlines of the managements of the two airports may vary significantly”.

23. AER – FARE cooperation • “DRAFT OWN-INITIATIVE OPINION of the Commission for Territorial Cohesion Policyon theDraft Community guidelines on financing of airportsand start-up aid to airlines departing from regional airports”. Unanimously approved on 29 April 2005 • Rapporteur: Cllr Gordon Keymer CBE (UK/EPP) - Leader, Tandridge District Council “ The Committee of the Regions' Recommendations: The Committee of the Regions 1. requests that the views of the Council and European Parliament be sought by the Commission before a decision is taken and that an impact assessment be undertaken; 2. proposes that the Commission should suspend drafting its guidelines pending outcome of the appeal in the Ryanair/Charleroi case in the Court of Justice in order to avoid possible contradiction between the new guidelines and the legal judgement that is awaited; recommends that the guidelines be reviewed two years after entry into force; 3. advocates that only aid given by a public authority (based on the “single till” principle) in excess of that which would have been given by a private investor should be regarded as non-permissible state aid (Market Economy Investor Principle); similarly, proposes that public airports should be able to incur early year losses in the same way as private airports; 4. proposes that there should be an automatic review of state aid to new routes after the 3/5 year limit has elapsed, with the possibility of an extension (again time-limited) with the possibility of further extensions, in all instances to be judged on a case-by-case basis; 5. rejects the proposal that the first entrant on a new route can in effect “freeze” the route by excluding potential competitors for up to five years; 6. rejects the prohibition on state aid for new routes where a similar route exists from another airport (e.g. a major hub airport) within the same “economic attraction zone”; proposes that the concept of “economic attraction zone” be clarified; 7. proposes that Category C and D airports be excluded from the notification requirements; if only Category D airports are excluded then it should include airports with up to 2 million passengers per year; 8. recommends a general application of the principles of de minimis and of “silent approval” throughout the guidelines, including the practice of single notification for regional schemes covering several airports. “

24. AER – FARE cooperation B) Meeting on 3rdMay 2005 held by Mr. Benot Le Bret – Chef of Cabinet of Mr. Jacques Barrot, Transports Commissioner, with AER and FARE. Now the Commission seems to perceive that: * highly sensitive ISSUE (→ 60 different consultation documents); * large airports and large airlines are mobilizing against the development of regional airports; * MEIP principle is to be further developed in the Guidelines; * need to cooperate with the regions, particularly after the COTER Opinion (29thApril 2005).

25. AER COMMITTEE C ‘REGIONAL POLICIES’ PLENARY SESSION “Common lines for the AER and FARE responses to the EC draft guidelines on regional airports“ FARE - Forum of European Regional Airports Ms. Gina Giani - Representing Mr. Pier Giorgio Ballini, FARE Chairman Ponta Delgada, 6 May 2005