EUROPEAN COMMISSION Brussels, 5.1. 2017 C(2016) 8919 final PUBLIC VERSION This document is made available for information purposes only. Subject: State Aid SA.44097 (2016/N) Finland Operating aid to Lappeenranta airport Sir, 1. PROCEDURE (1) On 1 December 2016, the Finnish authorities notified operating aid to Lappeenranta airport ("the measure"). (2) The Commission requested additional information on the proposed measure on 2 May 2016, 25 September 2016 and 17 October 2016. The information requested was submitted by the Finnish authorities on 2 May 2016, 10 October 2016 and 4 November 2016. 2. DESCRIPTION OF THE MEASURE 2.1. The beneficiary: the airport operator Lappeenrannan Lentoasema Oy (3) Lappeenranta airport is a small airport situated in Lappeenranta, a city in South- Eastern Finland near the Russian border, belonging to the region of South Karelia. (4) The airport is owned by Saimaan lentoasemasäätiö sr, a Finnish foundation that is owned by the city of Lappeenranta (70%) and the regional Council of South Karelia (30%). (5) The airport is operated by Lappeenrannan Lentoasema Oy (Lappeenranta Airport Ltd), a Finnish limited liability company that is currently owned by the foundation and that rents the airport property from the foundation. Until 2016, the airport was owned and operated by Finavia. Mr Timo Soini Ministry for Foreign Affairs PO Box 412 00023 Government Finland Commission européenne/Europese Commissie, 1049 Bruxelles/Brussel, BELGIQUE/BELGIË - Tel. +32 22991111 (6) Currently, there are no regular commercial flights to or from Lappeenranta airport. The airport has only charter flights by tour operators, mainly to popular European holiday destinations, and occasional official and civil flights. (7) Until October 2015, Ryanair operated weekly scheduled flights to Lappeenranta from Girona, Bergamo and Weeze. AirBaltic flew to Lappeenranta from November 2009 to January 2014. (8) The airport is the only passenger airport in South Karelia. The domestic catchment area contains three counties with a population of 460 000, the international catchment area contains the region of St Petersburg with 7 million inhabitants. In 2014, Lappeenranta airport had 65% flight passengers from Russia. (9) The closest commercial passenger airports1 are: (a) Savonlinna Airport (approximately 166 km, or 1h 58 minutes by car); (b) Helsinki Vantaa (approximately 223 km, or 2h 24 minutes by car) and (c) St Petersburg Pulkovo, Russia (approximately 240 km, or 2h 53 minutes by car). (10) Lappeenranta airport has a basic capacity of 300 000 passengers per year. The airport currently serves less than 100 000 passengers per year and passenger numbers have been decreasing in recent years due to Ryanair's decision to stop commercial flights from Lappeenranta airport and AirBaltic's withdrawal. Annual passenger traffic registered at the airport was as follows: Table 1: Passenger development at Lappeenranta airport 2009 – 2015 Actual passengers: Year 2009 2010 2011 2012 2013 2014 2015 Passengers 14 000 61 000 116 000 93 000 98 000 89 000 35 000 Source: Information provided by the Finnish authorities (11) The Finnish authorities submitted the business plan dated 25 February 2016. Traffic forecasts in the business plan of the airport (2016-2024) foresee a growth to 230 160 passengers by 2021. The airport aims to attract additional airlines and consequently to increase passenger numbers. The business plan foresees the development of point-to-point flights to important European (business) destinations, flights to some Northern European hub airports, e.g. Riga, Tallinn, Copenhagen, Stockholm, and strengthening of the holiday charter segment, especially by cooperation with European and Russian tour operators2. 1 All distances in road kilometres/travel time are based on the fastest route. Source: maps.google.com, accessed on 11 October 2016. 2 In order to attract tourists, the airport will promote the attractiveness of the Lake Saimaa district where the airport is located. Also a possible passengers grow can be expected due to upcoming international events such as the FIFA World Cup 2018, which will be held in neighbouring Russia which will also contribute to promote the region. 2 (12) Based on the business plan, Lappeenranta airport would be economically viable with 230 000-300 000 passengers per year. According to the Finnish authorities this level could realistically be reached between 2021-2024 by having three daily flights. 2.2. Overview of the measure 2.2.1. Operating aid 2016 - 2019 (13) The measure consists in operating aid to the operator of Lappeenranta airport from 1 January 2016 to 31 March 2019. (14) The initial operating funding gap is a yearly average of the operating funding gaps calculated from 2009 till 2013. The initial operating funding gap for Lappeenranta airport amounts to EUR 994 200 (see Table 2). The maximum permissible aid amount of EUR 2 584 920 is calculated on the basis of 80% of the initial operating funding gap during the years 2016 – 03/2019 (80% x 994 200 x 3.25). The notified aid amount is EUR 2 469 713 which is the discounted maximum permissible aid amount using a rate of return 0.95%. The Ministry of Transport and Communications, the Regional Council of South-Carelia and the City of Lappeenranta would cover the airport's operating funding gap during the years 2016 – 03/2019, up to EUR 2 469 713. (15) Table 2: Initial operating funding gap (in euro) Year 2009 2010 2011 2012 2013 Average The 2009 - maximum 2013 aid amount Operating 953 1 059 1 021 1 098 840 000 994 200 2 584 920 funding 000 000 000 000 gap (16) The measure will be awarded in the form of a direct grant. (17) On the basis of the traffic forecast (see Table 3), the Finnish authorities expect the actual operating losses for 2016 to 03/2019 to be as shown in Table 4. Table 3: Projected passenger numbers Year 2016 2017 2018 2019 2020 2021 Passengers 26 240 54 800 85 000 120 480 191 200 230 160 Table 4: Expected operating losses (in euro) Year 2016 2017 2018 2019 (3M) Deficit (in euro) 561 852 907 361 904 272 98 996 3 (18) The Finnish authorities consider, however, that the future costs and revenue developments are surrounded by a particularly high degree of uncertainty due to the small size of the airport and the lack of regular commercial flights. (19) Due to this uncertainty, the Finnish authorities notify a maximum aid amount of EUR 2 469 713, even though they commit to only compensate the actual operating funding gap in the years 2016 to 03/2019. 2.3. Legal basis (20) The legal basis for the operating aid to Lappeenranta airport is the Act on Discretionary Government Transfers (Valtionavustuslaki) No 688/2001. 2.4. Commitments by Finland (21) With regard to the operating aid granted for 2016 to 03/2019, which is capped at 80% of the initial operating funding gap for a period 2016 – 03/2019, the Finnish authorities committed that the amount of aid to be paid to the airport of Lappeenranta will cover only the actual annual operating funding gap. (22) The Finnish authorities commit to comply with the rules on transparency as provided for in points 162 and 163 of the Commission Guidelines on state aid to airports and airlines ("the Aviation Guidelines"3), as amended by the "Transparency Communication"4. 3. ASSESSMENT OF THE MEASURE 3.1. Existence of aid (23) By virtue of Article 107(1) of the Treaty on the Functioning of the European Union5 ("TFEU") "any aid granted by a Member State or through State resources in any form whatsoever which distorts or threatens to distort competition by favouring certain undertakings or the production of certain goods shall, in so far as it affects trade between Member States, be incompatible with the internal market." (24) The criteria laid down in Article 107(1) TFEU are cumulative. Therefore, for a measure to constitute State aid within the meaning of Article 107(1) TFEU, all of the following conditions need to be fulfilled. The financial support must: − be granted by the State or through State resources, − favour certain undertakings or the production of certain goods, − distort or threaten to distort competition, and − affect trade between Member States. 3 OJ C 99, 4.4.2014, p. 3. 4 Communication from the Commission amending the Communications from the Commission on EU Guidelines for the application of State aid rules in relation to the rapid deployment of broadband networks, on Guidelines on regional Sate aid for 2014-2020, on State aid for films and other audiovisual works, on Guidelines on State aid to promote risk finance investments and on Guidelines on State aid to airports and airlines, OJ C198/30 of 27.6.2014. 5 OJ C326, 26.10.2012, p. 47. 4 (25) In the following sections, the Commission will assess whether the measure meets these cumulative criteria and thus constitutes aid within the meaning of Article 107(1) TFEU. 3.1.1. Notion of undertaking and economic activity (26) According to settled case law, the Commission must first establish whether the operator of the airport of Lappeenranta is an undertaking within the meaning of Article 107(1) TFEU. The concept of an undertaking covers any entity engaged in an economic activity, regardless of its legal status and the way in which it is financed6. Any activity consisting in offering goods and services on a given market is an economic activity7. (27) In the "Aéroports de Paris" judgment, the General Court stated that the operation of an airport, including the provision of airport services to airlines and to the various service providers within airports, is an economic activity8. This was confirmed by the Court of Justice in its "Leipzig-Halle airport" judgment where it found that the operation of an airport for commercial purposes and the construction of airport infrastructure constitute an economic activity9.