Agusta will have to write a small check to the Italian State...

(B2) The Italian government will have to demand a small check from its national helicopter manufacturer AgustaWestland, in compensation for the payment of subsidies considered a little too large (even slightly illegal) by European competition experts. The case goes back twelve years.

Too visible support

In 1998, Italy granted several financial aids to its tricolor manufacturer Agusta (which became Agusta Westland with the acquisition of the British in 2000) to develop military helicopters. But part of the research input is used to develop similar products on a civilian level. This is where the shoe pinches for the European Commission. At the end of an investigation which lasted several years, she felt that Italy had pushed the plug a little. Under the pretext of helping a military project, it also aimed to support its 'national champion'.

Italy had in fact paid, first of all, financial aid for a research and development project concerning the A 139 military helicopter. In 2003, Agusta Westland marketed a totally civilian AW 139 type helicopter. Then Italy had granted financial aid for a military version of the BA 609 tilting rotor. The civil version of this rotor is currently being developed by the joint venture BellAgusta, in the United States (It should be marketed by 2013).

Judgment of the Commission: " Given the similarities between the military and civilian versions of the two projects and their chronological order, the aid had (also) the effect of distorting the conditions of competition on the internal market insofar as it also benefited the development of AW 139 civil helicopter and the civil version of the BA 609 tiltrotor »

The amount of the check

To assess the amount to be reimbursed, the Commission adopted the rule used for " repayable advances in cases concerning substantial aid for R&D” : the amount reimbursed by the beneficiary is proportional to the sales of the supported product. This reduces the additional profits made on sales of the civilian version thanks to the financing of the upstream military version”.

The amount therefore differs depending on the project:

- for the A 139 project, the related civilian version exists on the market, so it is possible to "determine with precision the total amount to be reimbursed, on the basis of a lump sum per helicopter delivered". The CEO of Agusta will have to put the sum of €25 million on his check.

- on the BA 609 project, it is a little more complex because the civil project has not yet been developed. The rule is that " an amount, increasing over time, will be reimbursed for each tiltrotor sold, over a maximum period of 20 years and up to the total amount of aid received by the company” (NB: 300 million euros).

Beneficiary of this 'generosity': the Italian Public Treasury. It is not specified if this one will then credit his Ministry of Defense... (this is another story)

Another recent affair: that of the Greek shipyards

For Commissioner Almunia, this is the first application of Article 348 (*) of the Treaty which allows such negotiation between the European Commission and the State concerned. We can, however, mention a recent case where, without going so far as to impose a fine, the Commission negotiated with the State to bring it into the European nails. This is the business of the Greek shipyards, Hellenic Shipyards (HSY). To facilitate the restructuring of what is the largest shipyard in Greece (1200 employees), which mainly produces military ships, the government granted it certain advantages (compensation of debts, payment of early retirement for workers, etc. .). Aid deemed partly illegal.

The Commission thus ordered, in July 2008, the Greek government to recover more than half a billion (€539 million, interest included) from the sites and to waive certain guarantees, which it considered to be contrary to European rules. But she had accepted an arrangement with Greece which had invoked, somewhat at the last moment, that this reimbursement could " undermine the military activities of Hellenic Shipyards”.

The arrangement, concluded on December 1, provided for the following:

• Hellenic Shipyards undertakes not to carry out any civilian activity for the next 15 years. And Greece will report annually on compliance with this obligation.
• The “non-naval” assets of HSY will be sold and the proceeds of the sale will be used to partially repay the incompatible aid.
• HSY renounces the use of land granted to it by the State, and which is not necessary for military activities.
• Greece and HSY waive the various guarantees deemed incompatible.

Careful monitoring

The message of this case as of the previous one is clear for the Member States. Don't try to play smart by helping your civilian industry under the guise of a military program. But don't hesitate to negotiate either... The Commissioner for Competition, the Spaniard Joaquim Almunia, did not fail to point this out. " In future, the Commission intends to assess the cases brought to its attention in which financial aid granted to military projects has civilian repercussions liable to distort competition, by following the same approach and making the necessary adjustments to ensure the proper functioning of the internal market".

Who's next ?

(*) Article 348 (ex Article 298): in the event of distortions of competition, “the Commission shall examine with the State concerned the conditions under which these measures may be adapted to the rules established by the Treaties”.

Read also:

• Agusta judgment: When the ECJ laid the foundations of the legitimate national interest
• Agusta in the eye of the European storm, again
• Italy's "privileged" relations with Agusta under surveillance
• The purchase of Agusta helicopters in Denmark, "unprofessional"?

(photo credit: Agusta Westland)