Ryanair: state-aid clouds gathering on the horizon?

Last Friday’s OJEC contained two documents of potentially major importance to our industry. As part of the European Commission’s investigations into the state aid complaints against Altenburg and Angoulême airports and their financial support to Ryanair, the Commission has provided its preliminary findings and invited comments from the parties involved.

(For the benefit of any reader who has just returned from a multi-year interstellar voyage or who has recently been rescued from a decade-long exile on a desert island: Ryanair’s support arrangements with the airports to which it flies typically involve a multi-year “marketing” deal with a Ryanair subsidiary, Airport Marketing Services (A M S), under which the airport pays A M S a certain sum of money and in return gets some exposure on the Ryanair website. Ryanair’s argument is that this is not route support in the classic sense, but rather a separate internet marketing contract. The implication seems to be that as a marketing contract, it falls outside the scope of the EC Guidelines on State Aid.)

Both cases have something to tell us. Let’s summarise. (A disclaimer is in order: I am not a lawyer, and the following is not legal advice or expert legal analysis.)


The wheels of justice grind slowly. Back in 2008, the Federation of German Airlines submitted a complaint to the EC, alleging illegal state aid to (the majority publicly-owned) Altenburg Airport (3-letter code AOC) and to Ryanair. In particular, they alleged that Ryanair’s AOC-STN service was unfairly competing with Air Berlin’s Leipzig-STN. Ryanair operated from AOC from 2003 to 2011; Air Berlin withdrew from Leipzig-STN in 2008.

There were three elements to the alleged state aid:

  1. Investment (capex) subsidies to the airport: €4.5m of public funds for a runway extension
  2. Operating subsidies to the airport: €7m of public funds
  3. Payments by the airport to Ryanair

In the Commission’s preliminary conclusion published last week, the (provisional) score is 3-0:

  1. The Commission considers the investment subsidies to be State Aid and doubts to what extent it was necessary
  2. The Commission considers the operating subsidies to be State Aid and doubts whether they comply with General Economic Interest or Rescue and Restructuring guidelines
  3. The Commission considers the reduced passenger charges and marketing services payments to be State Aid, doubts whether a prudent private investor would have entered into such an agreement, and doubts whether this aid is compliant with the 2005 Guidelines.

As part of its investigation, the Commission has looked at the marketing agreements between the airport and Ryanair. Although the monetary amounts are redacted for reasons of commercial confidentiality, it’s still interesting to see some details:

  • The first 2003 contract was signed for a 10-year period, with the benefits to Ryanair increasing in the second five years.
  • The airport contracted to pay Ryanair a “success fee” per departing passenger. This was greater than the landing fee, so the net result was a payment to Ryanair for each passenger. (This will not come as a surprise to many airport managers.)
  • In 2008, the airport signed a two-year contract with Airport Marketing Services (A M S). The amount to be paid is redacted (but increased by 50-60% in Year 2 compared with Year 1). In return the airport was to receive a 150-word paragraph on the destinations section of the Ryanair website, for an unspecified period and with no particular placement specified. The airport had the right to provide a hyperlink in its text, but this could not point to any service which Ryanair provided elsewhere on its website (flights, car hire, accommodation etc.) Ryanair had the last word on what would be allowed; the airport was responsible for checking whether the paragraph in fact appeared on the website as agreed.
  • In 2010, a further one-year contract between the airport and A M S was signed. Its stated purpose was to publicise the business and tourism potential of the region in the context of Stansted, Girona and Alicante services.  In return for an unspecified amount (apparently significantly more than in 2008), the airport would receive various links on the English- and Spanish-language Ryanair websites.
  • Incidentally, the original complaint asserts [paragraph 56] that not only did Ryanair benefit from discounted charges and marketing support, but that the original marketing agreement shielded Ryanair from any subsequent increases in nationally-imposed taxes or passenger charges.

The German authorities, in their submission to the Commission, have tried (somewhat half-heartedly in my view) to argue that the marketing support was reasonable. They assert that in the period 2003-March 2009, Ryanair spent something between €150k and €300k (the exact amount is redacted) on external advertising (press and other channels) in respect of Altenburg routes. They also argue that the Ryanair website attracts a huge amount of traffic which increases the price of Google Adwords pay-per-click advertising on the site. The German authorities then try a little finger-in-the-air estimate [paragraph 52]:

if each click on the Ryanair website is worth €1…

…and if there are 100k-150k Ryanair passengers annually at AOC…

…and each one clicks on the link at least once (in practice, they would click more than once)…

…then that’d be equivalent to more than €150k, so the marketing agreement is fairly priced and Ryanair isn’t deriving any commercial advantage from it. QED.

(And if you believe that, I have some Greek bonds I’d like to sell you.)

The Commission very briskly and comprehensively dismantles this argument [53], and points out inter alia that while the 2003 marketing agreement involves a payment to Ryanair of a redacted amount in the range €150k-€300k, the total for the period 2008-2010 was somewhere between €700k and €1.2m. Subtext: “So, gentlemen, would you like to have a go at justifying that?”

The Commission then sets out its preliminary findings and asks for more information.

  • The public bodies (in particular the State of Thuringia) were actively involved in the commercial decisions and activities of the airport (this is a necessary condition for a state-aid finding)
  • The marketing payment to A M S was a further benefit to Ryanair. The Commission now asks for more precision on the nature of the legal relationship between Ryanair and A M S and the nature of the exclusive licensing contract which A M S has.
  • The aid (including the marketing support) granted to Ryanair was state aid, it was not in accordance with the Guidelines, it was not in accordance with the market investor principle, and it was not degressive.
  • No evidence was presented of a business plan for the routes in question under which the duration of the aid could make sense (e.g. showing that the route would take five years to be profitable).
  • The Commission has also asked for detailed accounts for the airport, showing the annual opex and capex, the amounts Ryanair actually paid and the non-aeronautical revenue from Ryanair passengers.

The Commission has now given the German authorities one month to provide a very large amount of additional information in support of the German assertion that there is no state aid. It seems fair to conclude that this will be difficult: one imagines some rueful Berlin civil servants spending late nights scratching their heads in the coming weeks trying to think of how they can respond to this.

And finally, the Commission formally reminds Germany that any finding of State Aid means that the aid found illegal has to be paid back without delay.



But if there is concern in Germany, there’s no room for Schadenfreude in France.The Commission has also issued an invitation for comments in respect of Angoulême airport in Western France.

The subjects of the complaint in this case are:

  1. Public funds (capex and opex) provided to Angoulême Chamber of Commerce and Industry (CCI), to the Syndicat Mixte which ran the airport subsequently, and to SNC-Lavalin, which took over responsibility for running the airport in early 2012.
  2. Marketing agreements between the airport, Ryanair and A M S, signed in February 2008 in respect of an Angoulême-Stansted service

I’ll focus on the second of these. Of particular interest is the Commission conclusion (which goes further than in the Altenburg case):

In particular, the Commission is of the opinion that, when it comes to assessing the agreements made with Ryanair and its subsidiary AMS, the airport services contract and the marketing services contract must be considered jointly as Ryanair and AMS in fact constitute a single beneficiary of the measures in question. On the basis of the information in its possession, the Commission takes the view at this stage that Ryanair/AMS may have received state aid under the 2008 agreements.

The Commission takes the view that the aid is not compatible with the 2005 guidelines – there was no evaluation of the route’s longer-term sustainability and the aid was not linked to the startup costs.

The French authorities in their initial input to this investigation asserted [paragraph 17] that airports of <1 million passengers should all be considered as “services of general economic interest” because of their role in their regional economies. The Commission disagrees [101, 138].

Angoulême’s agreement with Ryanair

Let’s look at the 2008 agreements with Ryanair/A M S. The agreements were for a term of five years. The airport offered the following:

  • Landing fee of €252/landing
  • Discounts on passenger charges of 57%, 48% and 24% in the first three years
  • Handling charges of €195/turnaround in Year 1 and €245 in subsequent years

Interestingly there was a (tiny) early termination penalty in the contract. In case Ryanair terminated the contract before the end of Year 3, it would pay €17,000 in respect of the fourth year and €8,500 in respect of the fifth year.

The A M S contract included:

  • In 2008: 5 paragraphs of text on the website for 8 months plus one homepage link for 24 days, for a payment of €400k
  • In 2009: 5 paragraphs of text on the website for 8 months plus one homepage link for 17 days, for a payment of €300k
  • In 2010: 5 paragraphs of text on the website for 8 months plus one homepage link for 12 days, for a payment of €225k

The Commission notes that there was also an early termination clause in the A M S contract in case of termination by Ryanair by the end of Year 3: a penalty of €50k for Year 4 and €25k for Year 5 would apply.

Interestingly, the Commission says that in 2009, Angoulême’s general airport tariffs for the first time offered all airlines’ new routes a “contribution to route development costs” of €15, €12 and €9 per passenger in Years 1,2 and 3 (limited to €400k, €300k and €225k, coincidentally exactly the same amounts offered to Ryanair – but dependent on achieving passenger volumes, unlike in Ryanair’s case). This support was no longer on offer in the airport’s 2010 tariff publication.

The Commission helpfully tabulates the financial transactions between the airport and Ryanair/A M S in 2008-2010:





Charges 54086




Marketing support





Net transfer to Ryanair/AMS





Net transfer to Ryanair/AMS per passenger





What could possibly go wrong?

In December 2009, Ryanair demanded an increase in Year 3 marketing support from the previously agreed €225k to €400k if it was to restore its STN service for Summer 2010. The Syndicat Mixte refused to vary the agreed contract; Ryanair suggested that it would then operate for only two months in the peak summer rather than the 8 months specified in the contract; the Syndicat Mixte rejected this proposal, and Ryanair therefore gave notice of termination.

The Syndicat Mixte has sued Ryanair for €859k in damages in a local French court, while Ryanair has instead gone to arbitration in London. The Syndicat Mixte is challenging the jurisdiction of the arbitrator before the French Conseil d’État; the case is pending.


The Commission’s preliminary conclusions for Angoulême are quite interesting:

  • There was public funding involved and public bodies were directly involved in the decision to award the funding.
  • Ryanair did not pay a market price for the use of Angoulême airport
  • The net payments to Ryanair in 2008 and 2009 were greater than the total airport revenues in those years.
  • The Commission has serious doubts that the market investor principle was applied and provisionally considers that Ryanair benefitted from state aid.

But two points in my view are particularly interesting:

  • The Commission concludes that Ryanair and A M S have to be considered as a single economic entity, and the Ryanair contract and A M S Marketing Agreement have to be considered as a single contractual relationship [215-225]. Indeed the French authorities appear to be of the same view.
  • The Commission asks the French authorities for a lot more information on the airport’s economics and on the basis for decisions, to be submitted within one month. In particular, it also invites any third parties who are directly competing with Angoulême to express their views on whether the aid under discussion helped Angoulême’s competitive position. More on this point below.



So what does all this mean for airports?

Of course we are expecting revised EC guidelines on state aid to the aviation sector later this year. However these recent papers from the Commission may signal the way the wind is blowing, and if the jurisprudence outlined here is upheld in the definitive findings, then I suggest that the world is going to shift a little on its axis:

  • The “fiction” that the AMS contract is only about online advertising, nothing to do with Ryanair route support, and not subject to the EC Guidelines on state aid, is likely to disappear. The Commission will consider the two contracts together in evaluating whether there has been illegal state aid.
  • In the absence of a credible business plan able to show that the route in question can be sustainable, but needs support at a particular level (including AMS funding) for several years, the Commission is likely to take a dim view.
  • In both judgements, the Commission reminds the national authorities that if the state aid is found to be illegal, it will have to be repaid. My understanding is that any appeals process is non-suspensive, i.e. does not delay the obligation to repay.

(It’s interesting to note that Ryanair’s press office, usually so ready to extrude a synthetic-outrage press-release on any regulatory topic at a moment’s notice, has been silent on both last week’s EC communication and on the latest investigation into Beauvais.)

But there’s more. Even if the definitive judgement in the Altenburg case is that the state aid is illegal and Ryanair has to pay it back, this doesn’t help Air Berlin whose Leipzig-Stansted route had to compete against the subsidised Ryanair service. The only remedy for Air Berlin (or any other airline in a similar position) would be to bring a court case against the public entities responsible for awarding the illegal aid, seeking compensation for economic damages caused. It’s going to be hard to make a black-and-white case that the failure of a route was entirely due to unfair competition. This could get very messy.

Now everyone can play

And I’ll offer you one other thought. The Commission’s request for inputs from third parties in the Angoulême case is very interesting. While one might imagine that only nearby airports (BOD, LRH,LIG,…) are affected, I’d argue that the set of affected airports is far larger. Ryanair sets airports all across Europe in competition with each other for service, especially from its major bases like Stansted. If Angoulême had not won a Ryanair service in 2008, the aircraft wouldn’t necessarily have gone to another Western French airport – it could have been used to operate a flight to any of a range of airports across Europe (certainly any airport within an approximately similar flying time from Stansted). Thus I’d suggest that any such European airport which lost out on Ryanair service in the 2008-2009 (or which won service, but had to offer discounts or marketing support) could justifiably submit a view to the Commission in the coming weeks that it too was adversely affected by Angoulême’s financial aid to Ryanair.

So what lies ahead?

I suggest that if the last few days are a flavour of things to come, Ryanair may find itself having to compete on a more level footing in future.

Last week we had invitations for comments on Altenburg and Angoulême. This week the Commission has announced the opening of an in-depth investigation into Beauvais. While I don’t think the Commission is working alphabetically, I can’t help thinking that Ryanair flies to some 168 airports and it’ll be a long time at this rate before we get to Zaragoza!

But more seriously, this begins to look as though the fundamentals of Ryanair’s route-support model are being unpicked, at least in the case of public airports.

Ask yourself: if you represent a public airport, are you really ready to sign a five-year deal for ill-defined website marketing services when the Commission is signalling clearly that such a deal will be considered as start-up aid and subjected to the full rigour of the Guidelines? Angoulême included early-termination provisions in its contract, though the amount was derisory, and offered other carriers “contributions to route development costs” in its 2009 published tariffs – at exactly the levels agreed the year before with Ryanair. I’d speculate that these steps may have been an attempt to comply with some of the requirements of the EC 2005 state-aid Guidelines, but in any event they do not seem to have been effective in the eyes of the Commission.

If you’re a private airport, you may start to have more leeway in future – or at least less competition from other airports to attract services. If these initial indications from the Commission are confirmed, it’s hard to avoid the conclusions, first, Ryanair is going to be paying back a large sum of money, and second, that the balance of power between airline and airports is going to be tilted back, just a little, away from the airline.

I’d even go out on a limb and speculate that if a few of these cases go against Ryanair at definitive-judgement stage, they might decide it’s worth their while reaching an agreed settlement with the Commission rather than undergoing a long-running war of attrition. They could afford to settle – a billion here or there won’t kill them – but it would represent a major one-off hit, and an ongoing adverse change to their cost base. That’d be one huge course correction to their business model.


Content is © 2012 Patrick Edmond, unless stated otherwise.


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