The European Commission has formally endorsed negotiations with Italy concerning the amount of subsidies that Agusta Westland must reimburse the Italian government for two military projects that also found civilian applications. The company received state support for two military projects – the helicopter A139 and the tilt-rotor BA609 – which also benefited civil versions. The EU Treaty says Member States may take measures for the protection of their essential interests, including defence. But the measures cannot distort the conditions of competition in the EU’s internal market for products which are not intended solely for military use. As the Commission established in 2009 that the support had also benefitted civilian helicopters, a solution had to be found to compensate the distortions of competition. Following discussions between Italy and the Commission, Agusta Westland will reimburse €25 million for the project A139, a civilian version of which is already in the market. It will also pay the Italian State a progressive annual amount per each civilian version of the tilt-rotor BA 609 (still being developed), for a maximum of 20 years up to the total aid received.

Joaquín Almunia, Commission Vice President in charge of Competition Policy, said: “This is the first time the Commission takes a decision addressing the spill over onto the civilian sector of financial support granted to military projects under the cooperation procedure foreseen in the Treaty. The Treaty says support to military projects is not covered by the EU’s state aid rules. But it is equally clear when it comes to possible spill over effects that a distortion of competition should be avoided. It is to the benefit of fair competition and of strained public finances that Member States claw back their resources when the civilian activities profit from the aided project.” He added: “This case has shown that the cooperation procedure foreseen by the Treaty can be used to correct possible competition problems. The Commission intends to treat similar situations brought to its attention in a similar way”.

In 1998 Italy provided financial support towards the research and development of the military helicopter A139. In 2003, Agusta Westland put on the market a helicopter named AW139, which is fully civilian.

Italy also provides financial support for the development of a military version of the tilt-rotor BA609. A tilt-rotor is an aircraft which takes-off and lands as a helicopter and flies like a plane. A civilian version of the tilt-rotor is under development by the US-based BellAgusta joint venture and is expected to be commercialised by 2013.

In October 2009, the Commission established that the granted support benefited the development of military projects. However, given the commonalities and the time sequence between the military and civilian versions of the two projects, the measures had the effect of distorting the conditions of competition in the internal market as they also benefited the development of the civilian helicopter AW139 and the civilian version of the tilt-rotor BA 609 (see IP/09/1602), .

Article 346 of the Treaty on the Functioning of the European Union says that “any Member State may take such measures as it considers necessary for the protection of the essential interests of its security”. However, the same article also says that “such measures shall not adversely affect the conditions of competition in the internal market regarding products which are not intended for specifically military purposes”. Article 348 further says that if there have distortions of competition, “the Commission shall, together with the State concerned, examine how these measures can be adjusted to the (state aid) rules”.

In order to correct any distortion of competition, the Commission and Italy agreed to initiate a separate procedure under article 348 (1) TFEU, requiring that the Commission, together with the Member State concerned, examines how the measures can be adjusted. The cooperation procedure under article 348 (1) has been used only twice in the past in cases concerning shipyards (Spain and more recently Greece), but this was in the context of a recovery procedure.

The agreed adjustment will remedy any advantage that Agusta Westland may have derived from the measure. The approach is similar to the one used for repayable advances in large R&D aid cases, where the amount reimbursed by the beneficiary is proportional to the sales of the aided product. The objective is to reduce any possible extra-profits from the sales of the civilian version deriving from the funding of the upstream military version, and it will concern future deliveries of AW 139 and BA 609.

The financial corrections agreed on the two projects are different:

– for the project A 139, a related civilian version exists on the market and it is therefore possible to determine exactly the total amount to be reimbursed (based on a fixed amount per helicopter delivered). The beneficiary company will reimburse an amount of up to €25 million to Italy;

– the project BA 609 concerns military technologies that are still developing without a civil model being at present available. An amount per tilt-rotor increasing with time will be reimbursed for a maximum duration of 20 years and up to the total amount of aid received by the company.

The Commission intends to assess future cases brought to its attention where a potential distortion of competition derives from spill-over from financial supports granted to military projects to civil ones, using the same approach and adopting the necessary adjustments to ensure the proper functioning of the internal market.