Ryanair 2008 Annual Report Download - page 17

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17
Legal proceedings
In February 2004 the European Commission ruled that Ryanair had received illegal state aid from
the Walloon Regional government following its establishment in 2001 of a low cost base at Brussels
(Charleroi). Ryanair immediately appealed the decision to the European courts on the basis that the
Commission had ignored similar agreements that Ryanair has with private airports, thereby placing
publicly owned Brussels (Charleroi) at a competitive disadvantage. Subsequently Ryanair was requested
by the Walloon regional government to repay what the Commission had deemed illegal state aid.
However, Ryanair agreed with the Region to place the disputed funds in a joint escrow account pending
the outcome of the appeal. Ryanair had its hearing before the European Court of First Instance in
March 2008 and is awaiting the Court’s decision.
In the meantime, Brussels (Charleroi) Airport has published a new tariff scheme, which complies
with the new EU guidelines, but which also maintains the same low cost base originally negotiated with
Ryanair. As a result Ryanair has based additional aircraft and launched new routes from Brussels
(Charleroi).
Following the Commission’s decision in Brussels (Charleroi) other high fare competitor airlines
have brought similar complaints against Ryanair’s arrangements at other airports in an attempt to block
competition, consumer choice and low fares. However, Ryanair is confident that its agreements with
publicly owned airports fully comply with the market economy investor principle (MEIP), i.e. they are
the same as its agreements with privately owned airports, and therefore do not constitute state aid. In
2007 and 2008, the European Commission announced that it had started investigations into airport
agreements with Hamburg (Lubeck), Tampere, Berlin (Schonefeld), Alghero, Pau and Bratislava
airports; however, Ryanair has only limited operations to and from these six airports. On June 17, 2008,
the Commission launched a further investigation into Ryanair’s agreement with Frankfurt (Hahn)
airport, which is a significant (privately owned) base for Ryanair. The investigation also addresses
capital increases by the local authorities to the airport. The Commission announced in a public
statement that its initial investigation found that the airport might have acted like a private market
investor but that it had “insufficient evidence” and therefore elected to open a formal investigation.
However, the complaints (by Lufthansa) about Ryanair’s cost base at Frankfurt (Hahn) airport have
already been examined and rejected by the German courts.
Adverse rulings in these or similar cases could be used as precedents by other higher fare
competitors to challenge Ryanair’s agreements with other publicly-owned airports and/or could cause
Ryanair to strongly reconsider its growth strategy in relation to public or state-owned airports across
Europe. This could in turn lead to a scaling back of Ryanair’s growth strategy due to the smaller
number of privately-owned airports available for development. No assurance can be given as to the
outcome of these proceedings, nor as to whether any unfavorable outcomes may, individually or in the
aggregate, have a material adverse effect on the results of operations or financial condition of the
Company.
Ryanair has filed complaints with the European Commission against continued State Aid received
by Alitalia, Air France and Lufthansa (among others). Ryanair also believes that Air France and Alitalia
are the beneficiaries of substantial state subsidies on routes that are subject to the so-called public
service obligations (PSO’s) subsidies. In 2007 Ryanair was prohibited from offering commercial flights
on the Rome (Ciampino) to Alghero (Sardinia) route following what Ryanair believes was the Italian
government’s unlawful and abusive imposition of a PSO subsidy on a route in favour of an Italian
airline. The European Commission subsequently confirmed that the imposition of PSOs on routes
between Sardinia and mainland Italy was an unlawful breach of the PSO rules.