European Commission authorises state aid

The European Commission has
authorised France and Italy to grant aid for research and development to
two European helicopter manufacturers (Eurocopter in France
and AgustaWestland in Italy)
for the development of new, innovative, medium-weight aircraft. The Commission
has decided that these measures are compatible with the EU rules on state aid, particularly
as the planned public funding is justified, proportionate and without risk for
competition.

Commission Vice-President in
charge of competition policy, Joaquín Almunia, said “These two helicopters will
bring significant progress in terms of flight security and reduced environmental
impact. They will also help to increase European know-how in leading-edge
technologies. The public support for these two highly innovative projects is
fully justified.”

The projects are aimed at
developing new helicopter models in the medium-weight (4-7 tonnes) segment, the
Eurocopter X4 in France and the AgustaWestland AW169 in Italy. With a
view to sustainable development, they will include major technological
innovations to enhance their operating performance, reduce their running costs,
limit their environmental impact and boost flight safety.

In both cases, the scale of
the projects is such that the investments and associated risks exceed the
funding capacities of the undertakings, in a context in which the markets are
wary of financing risky projects where there will only be a return on investment
in the very long term. The French and Italian aid therefore makes up for a
genuine market failure. In addition, the aid granted to the two undertakings is
proportionate, being limited to the amounts strictly necessary to conduct the
R&D projects. Moreover, it is unlikely to limit competitors’ willingness to
invest in a sector characterised by significant scope for technological
innovation and high growth prospects. It is therefore unlikely to distort competition.

Public support will be
granted by France
to the Eurocopter X4 project under an existing state aid scheme approved by the
Commission in December 2010. In view of the amount concerned, France notified
the measure on 8 November 2011 with a view to providing Eurocopter with a €143
million repayable advance, covering around 30% of total costs eligible for aid
(€470 million). The activities funded will consist of industrial research
(14.5% of the total) and experimental development (85.5%). The advances will be
repaid in full when a pre-defined sales target is attained. Each additional
delivery beyond this target will trigger the payment of a royalty fee to the Member State.

Public support will be
granted by Italy
to AgustaWestland for the Aw169 project under an existing state aid scheme
approved by the Commission in July 2008. In view of the amount concerned, Italy
notified the measure on 11 October 2011 with a view to providing AgustaWestland
with a €272 million zero-interest subsidised loan spread over 19 years.

The aid element of the loan,
calculated in line with the method used by the Commission for reference
rates amounts to around €94 million, i.e. less than 30% of the costs eligible
for aid (€340 million). The activities funded will consist of industrial
research (40% of the total) and experimental development (60%).

In the case of Italy, the
Commission also took account of the fact that part of the AW169 project will be
carried out in regions suffering from development deficits in relation to the
EU average (‘assisted’ areas under Article 107(3) of the Treaty on the Functioning
of the European Union): Campania, Lazio and Apulia. The Commission took the view that the R&D activities
carried out by AgustaWestland in these regions would make a positive
contribution to their technological development.

The two cases were treated
and approved separately, but the Commission applied to them the same rules and
principles, based on the State Aid Framework for Research, Development and
Innovation.

Terry Spruce

Terry is Senior News Editor and writes for both Corporate Jet Investor and Helicopter Investor. He is also responsible for our helicopter guides. Terry has been an aviation enthusiast since the early 1970s. He is a lapsed Private Pilot and ex-Piper Cherokee owner. He has flown a number of light aircraft and is comfortable sitting in the co-pilot's seat or the back of any aircraft. Before moving to journalism he was a banker for 20 years. You can contact him at: terry@corporatejetinvestor.com or follow him on twitter @Terry_Spruce

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