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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 deemed a little too large (or even slightly illegal) by European competition experts. The affair dates back twelve years.

Too visible support

In 1998, Italy granted several financial aid to its French manufacturer Agusta (which became Agusta Westland with the acquisition of the British company in 2000) to develop military helicopters. But part of the research input is used to develop similar products on the civilian level. This is where the problem lies for the European Commission. At the end of an investigation which lasted several years, she felt that Italy had pushed the envelope a little. Under the pretext of aiding 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 an AW 139 type helicopter, entirely civilian. Then Italy granted financial aid to a military version of the BA 609 tilting rotor. The civilian version of this rotor is currently being developed by the joint venture BellAgusta, in the United States (It must 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 linked civil version exists on the market, it is therefore possible to “accurately determine the total amount to be reimbursed, based on 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 is not yet developed. The rule is that “ an amount, increasing over time, will be reimbursed for each tilting rotor sold, over a period of 20 years maximum 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 whether he 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 so that it complies with European standards. 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, including interest) from the construction sites and to renounce certain guarantees, which it considered to be contrary to European rules. But it had accepted an arrangement with Greece which had claimed, somewhat at the last moment, that this reimbursement could “ undermine the military activities of Hellenic Shipyards”.

The arrangement, concluded on December 1, provided as follows:

  • Hellenic Shipyards undertakes to no longer carry out any civilian activities 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. Do not try to play the smart game by helping your civilian industry under the pretext of a military program. But don't hesitate to negotiate either... The Competition Commissioner, the Spaniard Joaquim Almunia, did not fail to point this out. “ In the future, the Commission intends to assess cases brought to its attention in which financial aid granted to military projects has civilian repercussions likely to distort competition, by following the same approach and making the necessary adaptations 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 examines with the State concerned the conditions under which these measures can be adapted to the rules established by the treaties”.

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(photo credit: Agusta Westland)

Nicolas Gros Verheyde

Chief editor of the B2 site. Graduated in European law from the University of Paris I Pantheon Sorbonne and listener to the 65th session of the IHEDN (Institut des Hautes Etudes de la Défense Nationale. Journalist since 1989, founded B2 - Bruxelles2 in 2008. EU/NATO correspondent in Brussels for Sud-Ouest (previously West-France and France-Soir).