When public authorities buy goods and services for themselves, they have to pay a market price, otherwise they confer an abnormal advantage to the sellers. On 14 June 2023, the General Court, in case T-79/21, Ryanair & Airport Marketing Services v European Commission, ruled that public authorities still confer an abnormal advantage by buying good and services that they don’t really need, even if they pay market prices.1
Ryanair and Airport Marketing Services [AMS], wholly owned by Ryanair, sought annulment of Commission decision 2020/1671 concerning State aid granted by France to Ryanair and the AMS in connection with their operations at Montpellier airport. The Commission found the aid to be incompatible with the internal market.
The aid was in the form of marketing agreements between the AMS and Montpellier’s Association de promotion des flux touristiques et économiques (Association for the Promotion of Tourist and Economic Flows) [APFTE]. The members of APFTE were public authorities. The aim of the agreements was to promote the Montpellier region to foreign tourists. For that purpose, the AMS undertook to advertise the region on Ryanair’s website. Some of the contracts had been put out to tender before they were awarded to the AMS. Nevertheless, the Commission concluded that the agreements did not serve a need of the region and that they conferred a selective advantage to the AMS and indirectly to Ryanair.
The main issue at hand was whether such services would have been bought on the same terms by a private operator – the so-called Market Economy Operator [MEO] test. Ryanair and the AMS also submitted a number of other pleas the main of which are reviewed in this article.
Because of the length of the judgment and its dealing with important State aid concepts, the article is published in two parts.
Access to file
Ryanair and the AMS complained that there were not permitted to inspect the case file that contained the information on which the Commission based its decision.
The General Court recalled that, regardless of the fact that defendants have a right to know what they are accused of, the established principle in the field of State aid is that “(38) the procedure for reviewing State aid provided for in Article 108 TFEU is a procedure initiated only in respect of the Member State responsible for granting the aid. Only the Member State concerned, as the addressee of the future Commission decision, may therefore rely on actual rights of defence. By contrast, the undertakings who are beneficiaries of the aid and their competitors are considered only to be parties concerned in the procedure for the purposes of Article 108(2) TFEU. No provision reserves any special role to the beneficiaries of the aid, among all the parties concerned. Those beneficiaries cannot rely on rights as extensive as the rights of the defence as such and cannot seek to engage in an adversarial debate with the Commission”.
“(39) Accordingly, the parties concerned, unlike the Member State responsible for granting the aid, do not have a right under the procedure for reviewing State aid to consult the documents on the Commission’s administrative file”. Then the General Court added that “(40) the parties concerned have, in essence, the role of sources of information for the Commission in the procedure for reviewing State aid.”
Because Ryanair claimed that Article 41 of the Charter of Fundamental Rights was violated, the General Court clarified that “(42) the Charter is not intended to alter the nature of the review of State aid established by the FEU Treaty or to confer on third parties a right of scrutiny not provided for by Article 108 TFEU”. “(45) It follows that, by adopting the contested decision without granting the applicants access to the investigation file or affording them the opportunity to make their views known regarding that file before it adopted the contested decision, the Commission did not disregard the principle of good administration laid down in Article 41(1) and (2) of the Charter.”
Compliance with Altmark conditions
Ryanair alleged that the Commission failed to apply the Altmark conditions. The General Court dismissed this allegation outright.
It is true that compliance either with the MEO test or the Altmark conditions leads to the same conclusion: that the public funds received by an undertaking do not confer an advantage to it and, therefore, do not constitute State aid. But that conclusion is reached from two very different premises. In the former case, the state acts as a private operator intending to derive a return. In the latter case, the state acts as a public authority that compensates the recipient undertaking for the extra costs it incurs in order to provide a service of general economic interest. Consequently, the compensation represents a certain budgetary “loss” to the state.
The General Court recalled that “(94) for such compensation to escape classification as State aid in a particular case, […] the recipient undertaking must actually have public service obligations to discharge and that the obligations must be clearly defined”. “(95) In the absence of evidence in the file which would suggest the existence of public service obligations, the Commission is not required to determine whether the Altmark conditions are applicable.”
The General Court also stressed that “(100) it is not possible to apply the Altmark conditions as an alternative to the ‘MEO’ test, and vice versa.” “(102) Accordingly, the Altmark conditions and the ‘MEO’ test are two analytical instruments which are applied in different situations.”
The relationship between the Montpellier airport operator and APFTE
Ryanair argued that the Commission was wrong to consider that Montpellier airport operator and APFTE did not constitute a single entity.
The General Court agreed with the Commission that the fact that they were both owned by public authorities was not sufficient evidence that they also acted as a single entity. Their owners were different while their share of participation differed too.
More interestingly, the General Court explained that two legally separate entities could act as a single entity if there were close economic links between them. “(119) That is the case where one of those entities exercises a decisive influence over the decisions taken by the other with regard to the beneficiaries of the aid […], or if one of them is economically dependent on the other, on account, in particular, of its financial structure or the transfer of resources from which it benefits”. “(120) In the present case, it is not apparent from the documents before the Court that the economic links between AMM and the APFTE are sufficiently close for them to be regarded as a single entity for the purpose of applying the ‘MEO’ test.”
The applicability of the MEO test
In this important part of the judgment, the General Court examined whether the Commission was correct to apply the MEO test to the purchases by the AFPTE of marketing services from the AMS.
The General Court, first, explained that “(141) the starting point for determining whether that test is to be applied must be the economic nature of the Member State’s action, not how that Member State, subjectively speaking, thought it was acting or which alternative courses of action it considered before adopting the measure in question”. “(142) The nature of the objectives pursued by State measures and their grounds of justification have no bearing whatsoever on whether such measures are to be classified as State aid”.
“(143) Where the ‘MEO’ test is applicable, it is necessary to examine whether the same measure would have been adopted under normal market conditions by a private operator in a situation as close as possible to that of the State. The test to be employed in practice in a
given case must be determined on the basis of, inter alia, the nature of the transaction envisaged by the Member State concerned”.
Indeed, it is often asked how one would know whether the MEO test is applicable. As indicated above, the answer is that it depends on the “nature of the transaction”. This answer implies that a return is in principle possible because the recipient has to pay back a certain amount or has to compensate in kind the public authority concerned. When the state grants State aid, it expects no return or no return is in principle possible either in monetary value or in kind.
Then the Court repeated the well-known rules for the application of the MEO test that it requires a comparison of the actions of the state with those of a private operator and that “(145) only the benefits and obligations linked to the situation of the Member State as a private operator, to the exclusion of those linked to its status as a public authority, are to be taken into account”.
But, this statement raises another question. If a public authority buys a good or service in order to carry out its public tasks, does it mean that it necessarily confers an advantage to the seller because a private operator, by definition, has no public tasks? The answer is that it must ignore the benefits from achieving its public policy objective and must take into account only the benefits and costs that a private operator would take into account.
This answer raises, in turn, another question. A private operator ultimately monetises all benefits and costs into a single indicator which is profit. When a public authority purchases a good or service that is needed for its public tasks it does not or cannot monetise everything into a profit indicator. So how can the state be compared to a private operator?
The few judgments in the case law have tried to resolve this conundrum by asking whether the purchases of the state correspond to its “real needs”. In other words, the behaviour of the state is not really compared to that of a private operator but to some conception of the ideal or true behaviour of the state.
Indeed, in the present case the General Court went on to point out that “(147) the mere fact that a State purchases goods and services which were allegedly offered on market conditions is not sufficient for that transaction to constitute a normal commercial transaction concluded under conditions which a private operator would have accepted. In certain circumstances, it is necessary to establish objectively that the State had a real need to purchase those goods and services”.
“(148) The Commission clarified its interpretation of ‘real need’ in its Notice on the notion of State aid. It is stated, inter alia, in paragraph 82 of that notice, included in Section 4.2, entitled ‘The market economy operator (MEO) test’, that, in order to assess whether certain transactions are in line with market conditions, all the relevant circumstances of the case should be considered. For instance, there can be exceptional circumstances in which the purchase of goods or services by a public authority, even if carried out at market prices, may not be considered in line with market conditions.”
“(150) In the present case, […], first, the Commission noted, in essence, that, in concluding the agreements at issue, the APFTE was pursuing a regional policy objective, was acting only as a public authority and could not have expected any financial gain as a market economy operator aside from the development of tourism in the region. It added that the purchase of marketing services by the APFTE did not meet a real need, but was in fact intended to subsidise Ryanair flights from and to Montpellier airport. Accordingly, it considered that the ‘MEO’ test was not applicable. Secondly, the Commission explained that, even if that test were applicable, the prices paid for the purchase of the marketing services were not in line with the market price, with the result that that test would not be satisfied.”
“(151) It must therefore be held that the Commission considered that the MEO test was inapplicable in the present case for two reasons relating, in essence, to the fact that the APFTE was acting as a public authority and to the fact that the purchase of marketing services from the applicants by the APFTE did not meet a real need.”
Then, the General Court disagreed with the Commission. “(152) As is claimed, in essence, by the applicants, none of the grounds relied on by the Commission was such as to rule out the applicability of the market economy operator principle.”
“(153) First, as regards the first ground, namely that relating to the fact that the APFTE was acting as a public authority, it should be observed that, as is apparent, in essence, from paragraphs 142 and 145 above, although the application of the ‘MEO’ test must be examined without reference to public policy objectives, the pursuit of such objectives does not preclude the applicability of that test.”
Although I agree with this conclusion, the General Court did not explain how the test can be applied when the public authority does not pursue profit. Which aspect of its transactions must be compared to those of the hypothetical private operator if profit is the decisive factor? I will provide an answer below.
The General Court went on to explain that, “(154) as regards the second ground, namely that relating to the purchase of marketing services from the applicants by the APFTE which did not meet a real need, it should be noted that, as is apparent, in essence, from paragraphs 146 to 149 above, examining the real need of the State to purchase goods and services by definition involves assessing whether a private operator in a situation as close as possible to that of the State would have adopted the same conduct under normal market conditions. Such an assessment falls, as is apparent from paragraph 143 above, within the scope of the ‘MEO’ test. Consequently, that ground, relied on by the Commission, also does not permit a finding that the ‘MEO’ test cannot be applied.”
“(155) Therefore, it must be held that the Commission, in concluding that the ‘MEO’ test was not applicable in the present case, erred in law.”
In other words, the General Court held that the Commission made a mistake because the Commission had considered that the pursuit of a public policy objective proved that the APFTE proved that it conferred an advantage on the AMS without examining whether a private operator would have behaved in the same way. But still, the Court did not explain how the
behaviour of the state pursuing a public policy objective could be compared to that of a private operator pursuing profit. After all, the state cannot be prevented from buying goods and services which are necessary for the performance of its tasks. Given that, as argued earlier, the purchases of a public authority can be assessed only against a benchmark that identifies the correct or appropriate need of that authority in view of its public policy objective, the only thing that can be found by examining the behaviour of a private operator is to establish whether that operator would have been able to pay a lower price. Since price is also determined by the volume of what is sold or bought, it follows that the true need of the public authority must necessarily be identified before the right price is established. Therefore, the application of the MEO test necessarily presupposes that the real need of the public authority is determined by reference to the public policy objective it pursues. Then it must be examined whether the price paid for the good or service in question exceeds that which would be paid by a private operator purchasing a similar good or service.
For completeness sake, it should be noted that in November 2022, the Court of Justice ruled, in joined cases C-331/20 P and C-343/20 P, Volotea & easyJet Airline v European Commission, that the MEO test must be applied even if a public authority pursues a public policy objective [paras 120 & 151 of that judgment], that the absence of a competitive selection procedure does not necessarily confer an advantage [para 127], that there is an advantage for the provider if the payment by the public authority, as “acquirer” of goods and services, exceeds the market rate [paras 129 & 152] and that the public authority does not have to earn profit, capital gains or dividends [para 155]. The Court of Justice annulled both the judgment of the General Court and the prior Commission decision that had found State aid in the purchasing of marketing services by Sardinian authorities.
In the present case, the General Court proceeded to examine the pleas of Ryanair and the AMS concerning the identification of the real need of the APFTE.