Commission Decision (EU) 2021/1428 of 24 February 2020 ON THE STATE AID SA.31662 – C/2011 (ex NN/2011) implemented by Romania for Timișoara International Airport – Wizz Air (notified under document C(2021) 1065)Text with EEA relevance.

Article 20, point 10 of the 1998 Statute.

(281) The Chairperson of the Management Board also carries out duties of managing director of the Airport Manager. The organic structure and influence chain is a further indicator of imputability of the approval of the schedule of charges and discounts to the State. In any case, and at the very least, the State was continuously kept informed about the evolution related to the schedule of charges and discounts via these members of the Management Board.

(282) Furthermore, based on the Article 2, point 2 of the 1998 Statute, the Airport Manager has as its main purpose the activities of national public interest. According to the Article 5 of the 1998 Statute, the Airport Manager is a specialized technical body designated by the Ministry of Transport to carry out mainly activities of national public interest in order, according to its scope of activity, to perform benefits, services, works for the administration and exploitation of assets belonging to or owned or leased out by the State, with a view to the national and international traffic of aircraft, ensuring the transit of persons and goods.

(283) In the light of these considerations, the Commission considers that there are sufficient indicators to find that the 2007 AIP, 2008 AIP and 2010 AIP are imputable to the State.

8.1.3.

Selectivity

8.1.3.1.

Principles

(284) To fall within the scope of Article 107(1) TFEU, a State measure must favour certain undertakings or the production of certain goods. Hence, only those measures favouring undertakings which grant an advantage in a selective way fall under the notion of State aid.

(285) It is settled case-law that the assessment of the selectivity condition requires it to be determined whether, under a particular legal regime, a national measure is such as to favour certain undertakings or the production of certain goods over others which, in the light of the objective pursued by that regime, are in a comparable factual and legal situation. The examination of selectivity requires prior definition of the reference framework within which the measure concerned fits.

Judgment of the Court (Grand Chamber) of 21 December 2016, Commission v Hansestadt Lübeck (Lübeck), C-524/14 P, EU:C:2016:971, paragraphs 40-67.

A measure is selective only if, within the context of a particular legal regime, it has the effect of conferring an advantage on certain undertakings over others, in a different sector or the same sector, which are in the light of the objective pursued by that regime, in a comparable factual and legal situation.

Lübeck, paragraph 58.

The concept of State aid does not refer to State measures which differentiate between undertakings if such differentiation arises from the nature or the overall structure of the system of which they form part.

Lübeck, paragraphs 40-67 and the case-law cited therein.

(286) A measure by which a public undertaking lays down the conditions for the use of its goods or services is not necessarily always a selective measure for the purposes of Article 107(1) TFEU.

Ibid.

8.1.3.3.

Conclusion on selectivity

(296) It follows from the above that Measure 2 does not meet the selectivity condition of Article 107(1) TFEU.

(297) The conditions of Article 107(1) TFEU are cumulative. If one of them is not met by a measure under assessment, such measure does not constitute State aid.

(298) The Commission therefore concludes that Measure 2 did not constitute State aid within the meaning of Article 107(1) TFEU as it was not selective.

(299) The Commission notes that the Opening Decision raised the issue that the AIPs may be incompatible with the internal market because of a potential discriminatory treatment between different types of passengers. This principle applies to measures which constitute State aid and prevents them to be found compatible under State aid rules.

Judgment of the Court of 15 June 1993, Matra v Commission, C-225/91, EU:C:1993:239.

As in the current case the AIPs are found not to constitute State aid, it is not necessary to further analyse the indissoluble link element raised in the Opening Decision.

1. ASSESSMENT OF MEASURE 3 – 2008 AGREEMENTS WITH WIZZ AIR

9.1.

Existence of Aid

(300) The principles of Article 107(1) TFEU as set out in recitals (171) and (172) are applicable also for the assessment of Measure 3, which concerns the 2008 Agreements between the Airport Manager and Wizz Air.

9.1.1.

Economic activity and notion of undertaking

(301) Wizz Air is an airline. It provides scheduled passenger air transport services and pursues an economic activity. It therefore constitutes an undertaking within the meaning of Article 107(1) TFEU.

9.1.2.

State resources and imputability to the State

9.1.2.1.

Principles

(302) The principles explained in recitals (271) to (275) are also applicable for this measure.

9.1.2.2.

Application to the present case

(303) For the state resources, the same as stated in the recital (276) applies.

(304) As regards imputability of the 2008 Agreements that were signed during the validity of the 1998 Airport’s statute, the reasoning in recitals (277) to (279) for the 2007 AIP, 2008 AIP and 2010 AIP applies mutatis mutandis.

(305) In the light of these considerations, the Commission finds that the conclusion of the 2008 Agreements between Wizz Air and the Airport Manager is imputable to the State.

9.1.3.

Selectivity

9.1.3.1.

Principles

(306) The principles explained in the recital (199) are also applicable for this measure.

9.1.3.2.

Application to the present case

(307) In the case at hand, the 2008 Agreements were concluded with a single undertaking- Wizz Air only. Measure 3 was thus selective by definition within the meaning of Article 107(1) TFEU.

9.1.4.

Economic advantage

9.1.4.1.

Principles

(308) The principles regarding an economic advantage within the meaning of Article 107(1) TFEU set out in recitals (202) to (206) apply to arrangements between airports and airlines. The application of the MEO Principle to such arrangements is further explained in the 2014 Aviation Guidelines.

2014 Aviation Guidelines, point 53.

(309) In the specific airport-airlines situation, the Commission will assess whether the availability of public resources to the airport confers an advantage for the airlines using that airport. Such aid to an airline using the airport can, in principle, be excluded where the relationship between the airport and that airline satisfies the MEO test.

(310) According to the 2014 Aviation Guidelines, by virtue of the MEOP, aid to an airline using an airport can, in principle, be excluded where:

(1) the price charged for the airport services corresponds to the market price, or

(2) it can be demonstrated through an ex ante analysis, namely an analysis based on the data available at the moment the measures in question were decided, that the airport/airline arrangement could be expected to lead to a positive incremental profit contribution for the airport.

(311) As concerns the first approach outlined in recital (310) (i.e. comparison of the price charged for airport services with the market price), according to the 2014 Aviation Guidelines, the identification of a benchmark requires, first, that a sufficient number of comparable airports providing comparable services under normal market conditions can be selected. In this respect the Commission notes that for the moment, a large majority of Union airports benefit from public funding to cover investment and operating costs. Publicly owned airports have traditionally been considered by public authorities as infrastructures for facilitating local development and not as undertakings operating in accordance with market rules. Those airports’ prices consequently tend not to be determined with regard to market considerations and in particular sound ex ante profitability prospects, but essentially having regard to social or regional considerations. Even if some airports are privately owned or managed without social or regional considerations, the prices charged by those airports can be strongly influenced by the prices charged by the majority of publicly subsidised airports as the latter prices are taken into account by airlines during their negotiations with the privately owned or managed airports. In those circumstances, the Commission expressed its doubts in the 2014 Aviation Guidelines that at the present time, an appropriate benchmark can be identified to establish a true market price for services provided by airports.

2014 Aviation Guidelines, point 59.

(312) In any event, the Commission considers that a benchmarking exercise should be based on a comparison of airport charges, net of any benefits provided to the airline (such as marketing support, discounts or any other incentive), across a sufficient number of suitable comparator airports, whose managers behave as market economy Airport Managers. In particular, the following indicators should be used: traffic volume; type of traffic (business or leisure or outbound destination); the relative importance of freight and the relative importance of revenue stemming from the non-aeronautical activities of the airport type and level of airport services provided; proximity of the airport to a large city number of inhabitants in the catchment area of the airport; prosperity of the surrounding area (GDP per capita); different geographical areas from which passengers could be attracted.

(313) Based on the above, the Commission considers the ex ante incremental profitability analysis to be the most relevant criterion for the assessment of arrangements concluded by airports with individual airlines.

(314) In addition, the Commission considers that arrangements concluded between airlines and an airport can be deemed to satisfy the MEOP test when they incrementally contribute, from an ex ante standpoint, to the profitability of the airport, at least in the long term.

2014 Aviation Guidelines, point 66.

The airport should demonstrate that, when setting up an arrangement with an airline (for example, an individual contract or an overall scheme of airport charges), it is capable of covering all costs stemming from the arrangement, over the duration of the arrangement, with a reasonable profit margin on the basis of sound medium-term prospects.

2014 Aviation Guidelines, point 63.

(315) In this respect, the Commission considers that price differentiation is a standard business practice, as long as it complies with all relevant competition and sectoral legislation. Nevertheless, such differentiated pricing policies should be commercially justified to satisfy the MEOP test.

2014 Aviation Guidelines, point 62.

9.1.4.2.

Joint assessment of the 2008 Agreements

(316) The Commission considers that for the purpose of application of the MEOP, the 2008 Agreements have to be assessed together as one single measure. There are several indications why this should be the case.

(317) First, the agreements were concluded by the same parties.

(318) Second, the Memorandum of Understanding from 25 June 2008 lists the scope of the services to be provided by the Airport Manager as well as the marketing services to be provided by Wizz Air. The Memorandum of Understanding foresees the same formula for calculating the marketing fee and the same retained amount per departing passenger as the Marketing Agreement of 30 July 2008. Consequently the Memorandum of Understanding and the Marketing Agreement are closely and directly linked in terms of content. The Memorandum of Understanding also provides the general principles of cooperating between the Airport Manager and Wizz Air which are subsequently spelled out in more operational terms in the Marketing Agreement, the Operation Agreement and the GHA. The Marketing Agreement also makes a direct reference to the Memorandum of Understanding in its preamble (recital (55)). The Memorandum of Understanding was eventually replaced by the Marketing Agreement, the Operation Agreement and the GHA.

(319) Thirdly, the Operation Agreement and the GHA were signed on the same day (1 August 2008) for the same period of time, i.e. 11 December 2008 to 10 December 2009, with an automatic renewal for further 12 months at each anniversary of its entry into force, and without the possibility to terminate them prior to the third anniversary of the Marketing Agreement. The Marketing Agreement also entered into force the same day, i.e. 11 December 2008 (recital (54)).

(320) Fourth, the 2008 Agreements were interlinked. The Marketing Agreement makes several references to the Operation Agreement and the GHA: i) the Marketing Agreement foresaw that parties could terminate immediately the Marketing Agreement if the Operating Agreement expired without renewal or was terminated; ii) the Marketing Agreement stipulatated that parties could terminate immediately the Operation Agreement and the GHA without any damages when the Marketing Agreement expired or was terminated; iii) the Marketing Agreement stipulated that in case of an increase of the charges regulated in the Operating Agreement or the GHA, the marketing fee should be modified equally to the change of the airport charges (recital (59)).

(321) On the basis of the above arguments, the Commission considers that the Memorandum of Understanding, the Marketing Agreement, the Operation Agreement and the GHA are not separable. The Commission therefore finds that it is necessary to analyse the 2008 Agreements together, with a view to determining whether such a transaction constitutes State aid.

9.1.4.3.

Application of the principles to the present case

(322) In the present case, in order to determine whether the 2008 Agreements grant Wizz Air an advantage that it would not have received under normal market conditions, the Commission has to examine whether in similar circumstances an airport operating under normal conditions of the market economy and guided by prospects of profitability in longer term

ALFA Romeo, paragraph 23; Judgment of 12 December 2000, Alitalia v Commission, T-296/97, EU:T:2000:289, paragraph 84.

would have entered into same or similar commercial arrangement with an airline. The Commission has to place itself at the time when the decision to conclude the 2008 Agreements between the Airport Manager and Wizz Air was taken and base its assessment on the information and assumptions which were at the disposal of the Airport Manager at that time.

(323) As to the applicable MEO analysis, Wizz Air submitted that the comparison with the market price approach, i.e. the first approach explained in recital (310)(1) should apply to this case in addition to the second approach (i.e. profitability analysis) in recital (310)(2).

(324) Wizz Air submitted a report prepared by Oxera on the Economic MEIP assessment dated 27 October 2011, where the charges paid by Wizz Air at Timișoara International Airport have been compared with the charges paid by Wizz Air at three airports in the UK, which Oxera considered to be comparable airports: Liverpool, Prestwick and Doncaster airports. The analysis in the study is based on the data provided by the Airport Manager and Wizz Air. According to the Oxera study, these airports are likely to behave by their ownership and funding structure as private investor airports. The study also presented a comparison between the general characteristics of the Timișoara International Airport and the three comparable airports (e.g. size of the home city population, distance to the home city, population of largest city within 150 km, nearest large airport), the size in income level measures by GDP per capita as well as average weekly wages, the trends in traffic numbers, the revenues of the concerned airports and the funding status (i.e. whether it received or not public funding). The report calculated the charges paid by Wizz Air at Timișoara International Airport compared to the three UK airports (the analysis took into account different charges at the four airports net of benefits provided to Wizz Air). The analysis presented the total charges paid by Wizz Air at Timișoara International Airport and at the comparator airports expressed in euros per turnaround and euros per passenger. On that basis, it found that the overall level of charges paid by Wizz Air at Timișoara International Airport over the period 2008 – 2011 expressed both on a per- turnaround basis as well as per- passenger basis is higher on average than the comparable average level of charges paid by the airline at the comparator airports. According to the Oxera report, the lower prices paid by Wizz Air at the comparator airports suggest that a private investor would have been likely to enter into a contract on the terms of the deal between the Airport Manager and Wizz Air.

(325) Regarding the Oxera report comparing Timișoara International Airport with three UK airports provided by Wizz Air, the Commission recalls that benchmarking is not an appropriate method to establish market prices if the available benchmarks have not been identified with regard to market considerations or the existing processes are significantly distorted by public interventions. Such distortions appear to be present in the aviation industry, for the reasons explained in recitals (311) to (312).

(326) In addition, the Commission finds that the criterion of a sufficient number of comparator airports providing comparable services under normal conditions set out in point 55 of the 2014 Aviation Guidelines is not fulfilled. Given that there are a few hundreds of airports in Europe,

2014 Aviation Guidelines, point 1 states that the air transport system of the European Union is made of a network of over 460 airports.

three airports cannot be considered to be a sufficient number which would allow the identification of an appropriate benchmark for the relevant market prices. Moreover, two of the three benchmarking airports (Liverpool and Doncaster) are also owned by the same group – Peel Airports Group. This further undermines the number and variety of the comparator airports needed in order to provide a reliable benchmark.

(327) Furthermore, all of the three comparator airports are located in the United Kingdom and two of them (Liverpool and Doncaster) are close to the same large city – Manchester. Moreover, the Oxera report does not explain whether the three comparator airports as well as Timișoara International Airport provide comparable services. The study only provides information regarding the moment when Wizz Air started operation at each airport and to which destinations and analyzes the total fees paid by Wizz Air at these airports (net of payments for marketing services). However, this does not allow an assessment as to whether the airports provide comparable services.

(328) Furthermore, as the Oxera report itself points out there are a number of differences between Timișoara International Airport and other two UK airports (Liverpool Airport and Prestwick Airport). In particular, Liverpool Airport is substantially bigger than Timișoara International Airport (around 5.5 million passengers in 2007), Prestwick Airport served more than 2 million passengers. Therefore, in terms of traffic volume, the only one which was comparable was Doncaster Airport (up to 1 million). The number of passengers that Wizz Air itself transported from each of these airports differs.

(329) As regards the prosperity of the surrounding area (GDP per capita), there was a huge difference between that ofTimișoara (index of GDP per capita

As explained in the Oxera report, the index of GDP per capita for Romania and the UK is expressed in the purchasing power standards (PPS), relative to the average for the European Union (EU-27). The average for the European Union (EU-27) was set equal to 100.

below 50 in 2007) and the UK (index of GDP around 120 in 2007), where the three comparator airports are located. Furthermore, the Oxera report contains in the comparison part the information on average weekly wages in regional employment markets in Timișoara and the three cities in the UK where the comparator airports are located (Liverpool, Prestwick and Doncaster) and they are also very different (Timișoara is below 50, whereas the three other cities attained the level of more than 500).

(330) Moreover, the report does not take into account certain indicators as specified in point 60 of the 2014 Aviation Guidelines (e.g. the type of traffic or the type and level of airport services provided).

(331) Last, even assuming that, based on a valid comparable analysis, the price applied in the various transactions covered by this assessment were equivalent to or higher than the market prices, the Commission could not, however, conclude that those transactions necessarily corresponded to the market price. It would not be a market price if, at the conclusion of such arrangements, the operator may have expected them to lead to incremental costs higher than the incremental revenues. An MEO would not in fact be interested in offering goods or services at the market price if this led to its incremental loss.

(332) The Commission considers it appropriate to reiterate in the context of this analysis that, following the adoption of the 2014 Aviation Guidelines, both Romania and the interested parties were invited to submit comments on the application of those guidelines to the present case. Apart from Wizz Air, neither Romania nor other interested parties disputed the Commission’s approach according to which, where an appropriate benchmark cannot be identified to establish a true market price for the services provided by airports to airlines, the most relevant criterion for assessing the arrangements concluded between these two parties is an ex ante incremental profitability analysis.

(333) Therefore, based on the above, the Commission considers that the approach generally recommended in the 2014 Aviation Guidelines for applying the MEOP test to relationships between airports and airlines, namely the ex-ante incremental profitability analysis, must be applied in this case.

2014 Aviation Guidelines, point 59 and 61.

9.1.4.4.

Timeframe for assessing the profitability of the 2008 Agreements

(334) When deciding on whether or not to enter into agreements with an airline, a MEO will choose a time frame for its assessment based on the terms of the agreements in question or the term set in each individual agreement. In other words, it will assess the incremental costs and revenues for the term of application of the agreements. On the date of the signature of the agreements, a prudent MEO will not count on the agreements being renewed once they have expired, whether under the same or new terms.

(335) Based on the approach outlined in recital (334), the Commission will assess the incremental costs and revenues of the 2008 Agreements for the period 11 December 2008 – 10 December 2011, which is the initial period of application of the Marketing Agreement. The optional prolongation of the Marketing Agreement by another 12 monhts after the expiry of the first three years will not be taken into account. This was only an option to prolong, and therefore, a market operator could not have relied on the fact that such option would be executed.

(336) Both the Operation Agreement and the GHA were valid for an initial period of one year, i.e. from 11 December 2008 to 10 December 2009. Each of them foresaw an automatic renewal for further 12 months periods at each anniversary of their respective entry into force. The Airport Manager was not entitled to unilaterally terminate these two contracts before the 3rd renewal period.

Save for a standard breach of contract reasons.

As the renewal of the Operation Agreement and the GHA was automatic from the point of view of the Airport Manager, the Commission therefore considers that a prudent MEO would have assumed the Operation Agreement and the GHA would be valid at least for the duration of the Marketing Agreement, if not longer.

(337) A contrario, assuming an initial three- year period of the Marketing Agreement and a one- year initial period for the Operation Agreement would not have been logical, since without the operation of the airline at the airport, the Marketing Agreement would remain without object. Similarly, the duration of the application of the GHA would need to be aligned to the duration of the Operation Agreement as the groundhandling services are possible only if the airline operates at the airport. In addition, as explained in recital (319), the duration of the Marketing Agreement on the one side and the duration of the Operation Agreement and the GHA on the other side are linked.

(338) The Commission notes that the Memorandum of Understanding signed on 25 June 2008 was the framework setting out the general principles of cooperation between the Airport Manager and Wizz Air. These were then spelled out in operational terms in the Marketing Agreement, the Operation Agreement and the GHA. Therefore, the Commission considers the period before the signature of the Memorandum of Understanding, i.e. 25 June 2008, should be considered as the ex-ante standpoint of reference for the purposes of the profitability analysis.

(339) Both the Operation Agreement and GHA were amended on 25 June 2010 by a new discount scheme agreed between Wizz Air and the Airport Manager which covered the period up to 6 February 2011 (the 2010 Amendment Agreements). This new discount scheme corresponds to the 2010 AIP. Given the fact that the amendments brought modifications to the terms of the two agreements, the Commission will apply the MEO principle separately to the 2010 Amendment Agreements aiming to assess if an MEO would have entered into the amendment agreements. The assessment below will therefore distinguish the profitability analysis for the initial period of the 2008 Agreements from the profitability analysis of the 2010 Amendment Agreements.

9.1.4.5.

Profitability analysis of the 2008 Agreements

Assessment of incremental costs and revenues of the 2008 Agreements

(340) The 2008 Agreements were an individually negotiated arrangements that only applied to the two contracting parties. It is not an overall scheme of airport charges that applies to all airlines using the airport.

2014 Aviation Guidelines, point 63.

The relevant costs and revenues that are incremental to the 2008 Agreements are those that the Airport Manager expected to incur due to the operation of Wizz Air at Timișoara International Airport.

(341) The key issue is whether incremental revenues, arising from the activity of the airline, exceed incremental costs. Therefore, investments undertaken at the Airport prior to the agreements and fixed operating costs are not relevant.

(342) Incremental revenues that a private investor would reasonably expect from the 2008 Agreements would arise from additional aeronautical revenues from airport charges paid by Wizz Air and additional non- aeronautical revenues from, for example, car parking, franchised shops, or directly operated shops.

(343) Incremental costs in this case are the operating costs, marketing costs and any investment costs which can be attributed to the presence of Wizz Air at Timișoara International Airport.

Ex-ante profitability analysis provided by Romania for the 2008 Agreements

(344) Upon the Commission request, on 9 December 2014, Romania provided an ex-ante profitability analysis reconstructed ex-post based on the data available before concluding the 2008 Agreements with Wizz Air. The analysis provided an overview of the incremental revenues that could have been expected at the time the agreements were concluded.

(345) The 2008 Agreements were estimated to generate the following revenues:

Table 12: Ex-ante estimated revenues generated through the 2008 Agreements (excluding marketing agreement)

Year

(1) Number of passengers (estimated)

(2) Aeronautical revenue per Wizz Air passenger (EUR)

(3) Non-aeronautical revenue per pasager (EUR)

(4) Aeronautical revenues (EUR)

(5)=(2)x(3)

Non-aeronautical revenues (EUR)

(6)=(2)x(4)

Total revenues (estimated) (EUR)

(5)+(6)

2009200000122,50240000050000029000002010300000122,50360000075000043500002011350000122,5042000008750005075000

(346) The analysis uses the Wizz Air forecasts of the number of passengers to be transported in 2009, 2010 and 2011.

(347) The aeronautical revenue per departing passenger was calculated as shown in Table 13. The aeronautical revenues per Wizz Air passenger were calculated as the aeronautical revenue per Wizz Air departing passenger (approximately EUR 24) divided by 2, as only half of the Wizz Air passengers are departing passengers. The unit costs represent the full charges (i.e. without any discounts) as set out in the Operation Agreement and the GHA.

Table 13: Aeronautical revenue per flight and per departing Wizz Air passenger

MTOW72Capacity180Load Factor82 %Unit measureUnit charge (EUR)Per flight (EUR)Landing chargeMTOW7504Station chargeMTOW0,1510,80Lighting chargeMTOW2,10151,20Ramp Handling chargeFlight150150Embarked Passenger chargeDpax81180,80Security chargeDpax101476Passenger with Reduced Mobility chargeDpax0,2029,52Total per flightFlight3502,32Total per DpaxDpax23,73

(348) According to Romania, based on the Airport’s experience in preceding years, the non aeronautical revenues represented only 15 – 20 % of the total revenues of the Airport Manager, which amounted to EUR 2,5 of non- aeronautical revenue per passenger. This amount was also assumed for the Wizz Air passenger (as shown in column 4 of Table 12).

(349) When including the marketing payments as set out in the Marketing Agreement into the estimations, the following revenues were expected. The marketing payments are included in the table by Romania as the Airport marketing investment.

Table 14: Ex-ante estimated net revenues generated through the 2008 Agreements (including Marketing Agreement)

YearNumber of passengers/yearNumber of embarked passengers per year (2)/2Aeronautical revenue per embarked passenger (EUR)Non-aeronautical revenue per passenger (EUR)Tariff retained by the Airport Manager per embarked passenger (EUR)Amount retained by the Airport (3)x(7) (EUR)Aeronautical revenues (2)x(4) (EUR)The Airport marketing fee (8) – (7) (EUR)Non-aeronautical revenues (2)x(5) (EUR)Final revenues Airport (7) + (10) (EUR)(1)(2)(3)(4)(5)(6)(7)(8)(9)(10)(11)2009200000100000122,555000002400000190000050000010000002010300000150000122,546000003600000300000075000013500002011350000175000122,54700000420000035000008750001575000

(350) The amount retained by the Airport Manager per embarked passenger (column 6 of Table 14) was calculated based on the Marketing Agreement. The Marketing Agreement foresaw an amount to be retained by the Airport Manager

The retained amount was a methodology used in the calculation of the marketing payments in relation to the airport charges.

depending on the monthly number of passengers delivered by Wizz Air to/from the airport as follows.

Table 15 Retained amount per departing passenger

Monthly number of passengers (departing and arriving) delivered by Wizz Air to/from the airportRetained amount per departing passenger in EUR0-534985350-10690610691-15999516000-319994> 320003,50

(351) Given the number of estimated Wizz Air passengers per year of 200000 in 2009, 300000 in 2010 and 350000 in 2011, it was estimated that the number of Wizz Air passenger per month would have been 16666 in 2009, 25000 in 2010 and 29166 in 2011. On that basis, it was considered that the Airport Manager would retain EUR 5 per embarked passenger in 2009 and EUR 4 in 2010 and 2011.

(352) The analysis provided by Romania does not include incremental costs calculations. According to the Romanian authorities, the majority of airport costs are fixed (approximately 80 %). In addition, the airport costs were estimated to remain constant or be subject to only minor modifications due to an increased consumption of fuel and energy and possibly due the physical wearing out of equipment associated with Wizz Air operations at the airport. Romania explained that no other additional costs with the equipment, materials or infrastructure were expected since Wizz Air operations would use the existing assets and infrastructure during the time intervals which they were so far not used. The activity of the Timișoara International Airport was focused on Carpatair operations which used only certain time intervals during the day. No additional personnel costs were expected either for similar reasons. According to Romania, no investment costs were allocated to Wizz Air, because all airport investments were planned before negotiations with Wizz Air started. Consequently, according to the analysis, given the high share of fixed costs, the Airport Manager would benefit from an increased profitabitability due to the increase in the passenger volume, even when applying reduced tariffs.

(353) The Commission considers the approch regarding the number of estimated passengers reasonable as it is consistent with the Development Plan. The Development Plan foresaw an increase by 244348 passengers from 2008 to 2009. Given that Wizz Air operation agreement entered into force on 11 December 2008, it can be roughly said that from the 244348 passengers increase forecasted in the Development Plan, 200000 passengers were brought by Wizz Air. The Development Plan also estimated an increase in the passenger traffic by 253423 passengers from 2009 to 2010 and by 215973 passengers from 2010 to 2011. Therefore the increase by 100000 passengers from 2009 to 2010 and 50000 respectively from 2010 to 2011 for Wizz Air foreseen in the ex-ante analysis of Romanian looks reasonable.

(354) The Commission finds that the aeronautical revenues are overestimated as the discounts for the airport charges foreseen in the Operation Agreement are not taken into account. Nevertheless, due to the formula for calculating the marketing payment, the lower aeronautical revenue would have resulted in a lower marketing payment by the exact same amount.

For example, if the aeronautical revenue per departing passenger would be EUR 20 instead of EUR 24, the aeronautical revenues would be lower by EUR 400000, i.e. it would amount to EUR 2 million. The marketing payment would then be EUR 1500000 (EUR 2 million aeronautical revenues minus EUR 500000 the amount retained by the Airport Manager). So the marketing payment in such situation is lower by EUR 400000 when compared to a charge per passenger of EUR 24.

Consequently, the revenues and costs would be lower by the same amount and would therefore not affect the profitability.

(355) However, the Commission finds that the ex-ante analysis reconstructed ex post provided by Romania features a number of shortcomings as follows:

(a) The security charge

According to point 35 of the 2014 Aviation Guidelines, such activities necessary to safeguard civil aviation against acts of unlawful interference and investments relating to the infrastructure and equipment necessary to perform those activities are considered to be of a non-economic nature and therefore not to fall within the scope of the rules on State aid.

is entirely included as aeronautical revenue of the airport. This charge should have been either excluded considering it finances non-economic activities

The Commission understands that according to the Ordinance of the Ministry of Transport n° 2190/2005 the security charge finances exclusively investment, maintenance work and equipment which is directly related to security. To the extent the charge also finances such infrastructure or equipment which is also used for commercial purposes (and is therefore inherent to the airport business), the total exclusion of the charge from the calculation would be conservative and would under-estimate revenues. Nevertheless this would lead to an increase in the marketing payments by the exact same amount and therefore it does not affect the calculation of the profitability.

or should have been included in the aeronautical revenues with the corresponding security costs accounted for on the costs side (therefore the inclusion of security charge and costs would have not affected the profitability).

The Ordinance of the Ministry of Transport n° 2190/2005 regarding the use of the airport security charge, which was in force at the time of the signature of the agreement foresaw that the security charge should exclusively be used to i) carry out investments, capital repairs and maintainance works for any item directly related to the security of the activity of the airport; ii) purchase of equipment used for the security of the activity of the airport, iii) specific training for personnel involved in the airport security, iv) financing of the security guard services for the airport perimeter and of other services aiming at airport security; v) payment of any interest rates, insurance premiums and any fee related to loans contracted to finance activities explained above.

(b) The analysis does not provide any incremental operating costs calculation whereas it recognised that the Airport Manager will incur some additional operating costs (albeit small) associated with the presence of Wizz Air at Timișoara International Airport (recital (352)).

(c) The analysis does not provide a net present value and a discount rate.

(356) On the basis of the above, the Commission considers that the ex-ante profitability analysis reconstructed ex post by Romania does not prove compliance with the MEO Principle of the 2008 Agreements.

Oxera ex-ante profitability analysis for the 2008 Agreements

(357) Wizz Air submitted a report prepared by Oxera dated 10 February 2015 (together with its further amendment the Oxera Report), assessing the expected profitability of the 2008 Agreements with Wizz Air reconstructed ex-post based on the data that would have been available at the moment when the agreements were signed. The Oxera Report called Economic MEOP assessment: Timișoara airport. Profitability analysis is based on the data from the analysis provided by Romania (recital (344)) complemented by additional data provided by the Airport Manager to Oxera.

(358) The timeframe of the 2008 Agreements taken into account is three years, i.e. the initial timeframe foreseen in the Marketing Agreement without its possible extension.

(359) On 14 May 2015, Oxera re-submitted the expected profitability calculations to correct a data issue found in the report from 10 February 2015. The correction concerned an overestimation of the total costs of investments resulting from a double-counting of the investment funded by the state in the original submission. This data issue affected the expected profitability of the 2008 Agreements, which was originally underestimated.

(360) According to the amended Oxera Report, the results of the incremental costs, revenues and profits that could have been expected at the time were the 2008 Agreements were signed are summarised in Table 16 below. Oxera concluded that the 2008 Agreements were expected to have a net present value (the NPV) of RON 7,62 million.

Table 16: Oxera incremental revenues, incremental costs and incremental profits expected from the 2008 Agreements

(RON ‘000s)2008200920102011Number of Wizz Air departing passengers[A]5587100000150000164932Aeronautical revenues[B]255456568247507Non-aeronautical revenues[C]112208532413694Total incremental revenues[D] = [B] + [C]36766491006611201Operating costs[E]4787913671558Marketing costs[F]165295644114854Depreciation[G]9171617688Total incremental costs[H] = [E] + [F] + [G]222400663947099Incremental profits[I] = [D] – [H]146264336714102Discount factor1,00,80,70,6NPV7,620

(361) The results in Table 16 are based on the following considerations:

(a) Since no traffic forecasts were specified in the 2008 Agreements, forecasts of Wizz Air traffic at Timișoara International Airport for 2009, 2010 and 2011 have been based on forecasts of Wizz Air as set out in the ex-ante analysis provided by Romania. Traffic forecasts for 2008 have been derived from the 2009 level of expected traffic decreased by Eurocontrol’s (2008) estimated annual growth in European air traffic.

Eurocontrol (2008), Challenges of Growth 2008, Summary report, page 14.

(b) Forecasts of Wizz Air turnarounds have been based on information provided by the Airport Manager directly to Oxera. Oxera understands that the estimations it received from the Airport Manager were based on data available prior to the start of the 2008 Agreements. These forecasts imply a load factor of approximately 79 – 80 % (in line with the load factor of 82 % specified in the ex-ante analysis provided by Romania).

(c) Forecasts of aeronautical revenues are based on the per- departing passenger and per- turnaround charges and discounts at the same levels as were stipulated in the 2008 Agreements. The 2008 Agreements stipulate a discount of 10 % up to 70 % for the landing charge depending on the number of landings per year and a 10 % to 30 % discount for the passenger charge depending on the number of departing passengers per year. Based on discussions with Wizz Air, Oxera assumes a 50 % discount on landing charges. It also assumes a 10 % discount on the passenger charges. The analysis does not include the security fee as Oxera considered that this falls outside the scope of MEOP assessment since such fees finances activities that fall under state responsibility in the exercise of its official powers. This was based on point 35 of the 2014 Aviation Guidelines.

(d) Forecast of non-aeronautical revenues are based on the estimations of the non- aeronautical revenues per departed passenger Wizz Air included the ex-ante analysis provided by Romania (i.e. EUR 2,5 per Wizz Air passenger) These estimations are coverted in RON and uprated with expected inflation and applied to the traffic projections as explained in recitals a) and b) above.

(e) Regarding the incremental operating costs (e.g. staff services, energy, materials), the Airport Manager considers that about 20 % of the operating costs can be considered incremental, i.e. varying according to the number of passengers. The Oxera Report estimates incremental operating costs per passenger from the outturn operating costs data prior to signing of each agreement

For 2008, the outturn data for the whole year was taken into account. Nevertheless, Oxera confirmed that as the 2008 Agreements only entered into effect on 11 December 2008, this assumption does not significantly affect the results from the analysis. Oxera confirmed that, if the incremental operating costs for the assessment of the 2008 Agreements were instead based on the outturn operating costs for 2007 alone, this would lead to lower estimates of incremental operating costs (i.e. RON 8,0 – 8,9 RON per departing passenger, in comparison to RON 8,5– 9,4 per departing passenger) over the duration of the 2008 Agreements.

assuming 20 % of costs are incremental and uprated by expected inflation. Such incremental operating costs per passenger is applied to the Wizz Air traffic projections as explained in recitals a) and b) above. Security costs are excluded.

(f) The Oxera Report estimates the incremental marketing costs incured by the Airport Manager based on the provisions of the Marketing Agreement and taking into account the amount of the aeronautical fees estimated as explained in recital c) above.

(362) Regarding the incremental investment costs, the following assumptions were taken:

(a) In the absence of forecasts of expected investment, the Oxera Report estimates annual investment costs based on outturn investments at the Airport and financed both by state funding and own resources for the period 2007 – 2011.

(b) The government funding received by the Airport Manager for terminal building and security equipment has been excluded as it was not considered to be attributable to the presence of Wizz Air at Timișoara International Airport. According to Romania these were funded by the state in relation to the Schengen accession and were not required as a result of Wizz Air’s operations. The report assumes no additional investments were expected as a result of Wizz Air operation at Timișoara International Airport.

(c) The depreciation of other investments financed by the Airport Manager’s own resources was allocated to the Agreements with Wizz Air based on the expected share of Wizz Air traffic relative to the airport capacity.

(d) A straight line depreciation was considered when calculating the depreciation costs, i.e. annual depreciation has been calculated by allocating the investment cost equally in each year across the entire asset life.

The Commission notes that such linear depreciation is not in line with NPV practice, and thus, cannot be endorsed.

(e) The estimated profits have been discounted using the Commission’s reference rates, plus a margin of 100 basis points which results in a discount rate of 16,87 %.

(363) According to the Oxera Report, the results of the analysis of the profitability of the 2008 Agreements suggested that the charges paid by Wizz Air at Timișoara International Airport under the 2008 Agreements were comparable with a level of charges that would have been offered to Wizz Air by an airport-owning MEO in similar circumstances.

(364) The Commission finds the estimated passenger numbers in the Oxera study as reasonable. These traffic estimates seems consistent with the traffic forecast foreseen by the Development Plan. The estimated Wizz Air passengers in the Oxera Report increased by 188826 passengers

From 5587 departed passengers in 2008 to 100000 departed passengers in 2009 multipled by two to obtain the total number of passengers – departed and arrived.

from 2008 to 2009, 100000 passengers from 2009 to 2010

From 100000 departed passengers in 2009 to 150000 departed passengers in 2010 multiplied by two.

and 29864 passengers from 2010 to 2011.

From 150000 departed passengers in 2010 to 164932 departed passengers in 2011 multiplied by two.

The Development Plan foresaw an increase by 244348 passengers from 2008 to 2009, 253423 passengers from 2009 to 2010 and 215973 passengers from 2011 to 2010. Consequently, compared to the increase forecasted by the Development Plan, the estimated increase in Wizz Air passengers assumed in the Oxera Report seems reasonable and conservative.

(365) The Commission considers the assumed discounts to calculate the aeronautical revenues are reasonable. The Operation Agreement allowed for a 50 % discount on the landing charges for new airlines or new destinations or increase in the frequencies to/from existing destinations. Given that Wizz Air was just going to start operations at Timișoara International Airport, it was reasonable to assume they would open new destinations and/or increase frequencies over the period of the 2008 Agreements and therefore would benefit of a 50 % discount.

(366) The Oxera Report also assumes a 10 % discount on the passenger charge for the entire period of validity of the 2008 Agreements. For the years 2010 and 2011, the assumed 10 % discount is in line with the discount foreseen in the Operation Agreement for the estimated Wizz Air embarked passenger per year. Nevertheless, for the years 2008 and 2009, no discount should have been assumed since the estimated number of embarked passengers was below 150000 per year (and only above this number the discount is applicable). However, the assumed discount of 10 % for 2008 and 2009 lowers the revenues for those years and, therefore, the approach can be considered as conservative and, thereby, acceptable.

(367) The Commission also agrees with the exclusion of the security charge. The security charge finances activities which are considered to be of a non-economic nature and therefore not to fall within the scope of the rules on State aid, which is one of the option describes in recital (354) above. The Commission understands that, according to the Romanian legislation, the security charge finances exclusively investment, maintenance work and equipment which is directly related to security. To the extent the charge also finances such infrastructure or equipment which is also used for commercial purposes (and is therefore inherent to the airport business), the exclusion of the charge from the calculation of the revenues is conservative and would therefore under-estimate revenues.

(368) The Commission finds the estimation of incremental non-aeronautical revenues acceptable. This is based on the Airport Manager’s ex-ante estimation of non- aeronautical revenue per passenger and was uprated by expected inflation.

(369) The Commission also agrees with the discount rate used for the calculation, as it is in line with ther Commission reference rates.

(370) As regards incremental marketing costs incured by the Airport Manager, the estimations are based on the provisions of the Marketing Agreement, taking into account the estimated amount of the airport charges. The Commission finds them therefore acceptable.

(371) As regards incremental operating costs, the Oxera Report bases itself on the assumption provided by Romanian according to which 80 % of the operating costs are fixed and only 20 % vary with the number of passengers. The Commission finds this assumption reasonable.

According to the impact assessment accompanying the 2014 Aviation Guidelines, up to 90 % of the operating costs of airports are fixed and vary little with the scale of the operation. http://ec.europa.eu/smart-regulation/impact/ia_carried_out/docs/ia_2014/swd_2014_0042_en.pdf, page 26.

Oxera Reports estimates the incremental operating costs by using outturn data for operating costs per departing passenger prior to the signature of the 2008 Agreements and uprated for expected inflation. It then applies such per passenger operating costs to the estimated number of Wizz Air passengers. The Commission finds the approach in estimating the incremental operating costs therefore sound.

(372) Regarding the incremental investment costs, the Commission accepts the assumption according to which no additional investments were to be expected as the result of Wizz Air operation at the Timișoara International Airport. In the Memorandum of Understanding, the Airport Manager committed to:

i)

expand the passenger terminal to be able to handle up to three million of passengers/year by 1 January 2011 at the latest;

ii)

upgrade the Airport’s landing and take-off category to Category III of both directions until the end of 2009;

iii)

secure the necessary number of parking places for the passengers;

iv)

make from one aircraft stand available from February 2009 and make two to three aircraft stands available from October 2009.

(373) In addition, the Operation Agreement signed subsequently foresaw an obligation for the Airport Manager to finish the process of upgrading the airport’s landing and take-off category to only Category II until end of 2009.

(374) Regarding the commitment to expand the passenger terminal (recital (372)(i)), the Commission notes that the extension of the terminal was decided in two steps and the timing of the decisions preceeded the signing of the Memorandum of Understanding. A first extension of Timișoara International Airport was driven by the need to increase the capacity of the terminal given an expected increase in the traffic over the following years. This extension was foreseen by Development Plan drawn in March 2006 and formally approved by the Government Decision n° 1212 from 4 October 2007. The Government Decision foresaw an extension of the terminal over the period 2008 – 2009. A second extension was triggered by the need to comply with Schengen security requirements. According to the information provided by Romania, the fesability study for this extension was launched in January 2008 on the basis of a contract with a consultant from March 2008 and was finalised in June 2008, i.e. before the signature of the Memorandum of Understanding.

(375) The Commission notes that the Operation Agreement revised the commitment taken in the Memorandum of Understanding to upgrade the Airports’ landing and take-off category to Category III of both directions until the end of 2009 by a commitment to finalise the upgrade to Category II by end 2009 (recital (372)(ii)).

According to Romania, the Operation Agreement which revised the commitment in the Memorandum of Understanding foresaw legally binding actions while the Memorandum of Understanding has only a voluntary nature (no sactions were foreseen).

According to the publicly available information,

See https://aerotim.ro/istoric-ait.

the upgrade to the Airport’s landing and take-off category to Category III on landing direction East was done in 2015 through an upgrade of the radio- navigation system. Currently, Timișoara International Airport is Category III on landing direction East and and Category II for the landing direction West. According to information submitted by Romania, in 2008 the Airport was upgraded to Category II from Category I in one direction through an investment in the Airport’s lighting (the other direction was already Category II). The decision on the investment in the lighting system was taken in the Development Plan and the feasibility study was launched in August 2007 based on a contract from 22 August 2007. A contract for the acquisition of the lighting equipment was signed in October 2008. Therefore the decision on the upgrade of the lighting equipment was taken before the signature of the 2008 Agreements. Based on this, it is reasonable to assume that the Operation Agreement commitment to finalise the upgrade to Category II by end 2009 was referring to the upgrade to Category II aimed at through the lighting equipment which was already decided.

(376) Regarding the commitment to secure the necessary number of parking places for the passengers (recital (372)(iii)), the Commission notes that the investment in parking was done in 2007 and no other investments in parking were done after the signature of the MoU and during the term of its application.

(377) Regarding the commitment to make from one aircraft stand available in February 2009 to two to three aircraft stands from October 2009 (recital (372)(iv)), the works to expand the airport apron was taken in October 2007 and works were done over 2007, 2008 and 2009.

(378) Consequently, the Commission finds that the commitments taken in the Memorandum of Understanding and the Operation Agreement have either not materialised or have been decided upon prior to the date of the 2008 Agreements. No investment was made which was due to the Wizz Air presence at Timișoara International Airport.

(379) The Commission notes that the Oxera Report included the incremental depreciation costs of the investments made by the Airport Manager’s own resources based on the expected Wizz Air share in the airport capacity. Nevertheless as explained above, the Commission finds that the Airport Manager did not incur any investment costs induced by the presence of the airline at the Timișoara International Airport. Consequently, the Commission considers that the analysis should not include any depreciation costs associated with the 2008 Agreements.

(380) On the basis of the above, the incremental costs, revenues and profits that could have been expected at the time were the 2008 Agreements were signed as recalculated by the Commission based on the Oxera Report are summarised in Table 17.

Table 17: Oxera incremental revenues, incremental costs and incremental profits expected from the 2008 Agreements – recalculated by the European Commission

(RON ‘000s)2008200920102011Number of Wizz Air departing passengers[A]5586,9100000150000164931,5Aeronautical revenues[B]2554564,76824,47507,3Non-aeronautical revenues[C]112,42084,73241,13693,8Total incremental revenues[D] = [B] + [C]367,46649,410065,511201,1Operating costs[E]47,4879,11366,81557,7Marketing costs[F]29,62955,74410,94853,6Total incremental costs[G] = [E] + [F]76,93834,85777,76411,2Incremental profits[H] = [D] – [G]290,42814,64287,84789,9Discount factor10,80,70,6NPV8786,8

(381) To conclude on the Oxera Report as recalculated by the Commission, the 2008 Agreements were expected to be incrementally profitable for the Airport Manager.

Carpatair ex-ante profitability analysis of the 2008 Agreements

The Carpatair study

(382) On 10 November 2014, Carpatair submitted to the Commission a study setting out Carpatair’s view on the ex ante analysis and the assessment of the compliance with the MEO test of the Airport Manager when setting up the arrangement with Wizz Air on 25 June 2008.

(383) The study presented a base case scenario which is the scenario were no agreement with Wizz Air existed and three scenarios assuming the existance of the agreements with Wizz Air (an optimistic, a realistic and a pessimist scenario).

(384) Carpatair assumes that in the absence of any commitment by the airline with respect to a certain period of time to maintain its operations, the agreement does not have a definite duration and the appropriate duration for the profitability analysis is the time horizon of the Development Plan which covered the period up to 2015. Based on this consideration, the timeframe of the analysis included in its study is 2009 – 2015.

Table 18: BASE CASE Scenario: revenues, costs, cash flows

Base YearYear 1Year 2Year 3Year 4Year 5Year 6Year 720082009201020112012201320142015EstimateForecastForecastForecastForecastForecastForecastForecastGrowth Rate4 %10 %10 %10 %10 %10 %10 %Passengers, incl.887630921082101319011145091225960134855614834121631753O&D Timișoara Pax5790326008546609397270337997368797109676811064449Transfer Pax308598320228352251387476426224468846515731567304Pax break down per Carrier:Carpatair O&D Timișoara257739267452294198323617355979391577430735473808Carpatair Transfer308598320228352251387476426224468846515731567304Tarom144311149750164725181197199317219248241173265291Lufthansa4694748716535885894764841713267845886304

Austrian Airlines5242154397598366582072402796428760696367Other Carriers77614805398859397452107197117917129709142680All inclusive Charge, EUR/PAXO&D Timișoara Pax29,029,029,029,029,029,029,029,0Transfer Pax1,501,501,501,501,501,501,501,50Note: the O&D Timișoara Pax Charge includes the aircraft related charges (landing charge, lighting, parking, handling) and other non-aviation revenuesTotal Net Revenues, EUR8615136893981498337931081717211898891130887801439766215837426Net Revenues break down per Carrier:Carpatair O&D Timișoara37317513872389425962746855905154149566956462365226860174Carpatair Transfer231449240171264188290607319668351634386798423478Tarom20894502168195238501426235152885867317445434919003841089Lufthansa679736705353775888853477938825103270811359791249576Austrian Airlines7589937875978663579529921048292115312112684331395276Other Carriers11237571166108128271914109911552090170729918780292065832Total Costs as % of Total Revenues82,0 %82,0 %82,0 %82,0 %82,0 %82,0 %82,0 %82,0 %Total Costs, EUR70652427331509806465888711249758237107340611180747012988216Costs break down per Carrier:Carpatair O&D Timișoara30603963175732349330538426354226899464958951145495626004Carpatair Transfer189810196963216660238326262158288374317212348933Tarom17135501778129195594121515352366689260335828636943150063Lufthansa5574495784586363036999347699278469209316121024773Austrian Airlines62244764590671049678154685970094567010402381144261Other Carriers921589956321105195311571481272863140015015401651694182Profit Before Tax, EUR15498941608305176913519460482140653235471925901912849210CAPEX, EUR0005679646000Cash Flow As Is Scenario, EUR154989416083051769135-37335982140653235471925901912849210

(385) In the base case scenario, that is No Wizz Air arrangement, the investment in the PCN (pavement classification number) strengthening of the airside infrastructure was considered to be necessary only in 2011 and no investment in increasing the terminal capacity were considered necessary (see recital (388) for further explanations).

(386) No discount rate was used and no NPV was calculated for the base case scenario.

(387) As explained above, the Carpatair study presents three scenarios under the hypothesis Wizz Air Arrangement. The Commission will present in more detail the realistic scenario.

The only difference between the three scenarios is the level of estimated aeronautical revenues. Based on the consideration that 50 % of the actual Timișoara International Airport origin and destination traffic of Carpatair is at risk of being transferred from Carpatair to Wizz Air, in the realistic assumptions scenario the study considered that 50 % of such traffic would be transferred from Carpatair to Wizz Air, in the optimistic scenario 25 % and in the pessimistic scenario 75 %.

Table 19: Realistic ScenarioWizz Air arrangement entered: profits, costs, cash flows

Base YearYear 1Year 2Year 3Year 4Year 5Year 6Year 720082009201020112012201320142015EstimateForecastForecastForecastForecastForecastForecastForecastIncremental Profit from Wizz Air, EUR0-375518-558394-733496-813040-914694-1042962-1194727Incremental CAPEX due to Wizz Air, EUR5679646300000010000000113203540000

Incremental Cash Flow, EUR-5679646-3375518-10558394-12053850-813040-914694-1042962-1194727Incremental Cash Flow, cumulative-5679646-905516449613558-31667408-32480449-33395142-3443810435632832Required Rate of Return (Cost of Capital)8,0 %8,0 %8,0 %8,0 %8,0 %8,0 %8,0 %8,0 %Discount Factor1,000,930,860,790,740,680,630,58Present Value, EUR-5679646-3125480-9052121-9568735-597609-622525-657243-697112Present Value cumulative-5679646-8805126-17857247-27425982-28023591-28646116-2930335930000471ConditionStateNet Present Value (NPV), EUR-300004710NOT OKInternal Rate of Return (IRR)#NUM!>=8 %NOT OKPayback period, YearsNever< 7 yearsNOT OKDiscounted Payback period, YearsNever< = 7 yearsNOT OK

(388) The results in Table 19 were based on the following considerations:

The Wizz Air expected number of passengers was assumed based on the following:

(a) The study presents the airport’s traffic forecast from the development plan 2005 – 2015 presented in March 2005 as well as the updated traffic forecasts included in the development plan 2005 – 2015 presented in March 2006. Since the later development plan mentioned the possibility of attracting low cost airlines, Carpatair study assumed that the additional traffic growth assumed in the later development plan compared to the development plan from March 2005 should be attributed to LCC’s/Wizz Air expected arrival.

(b) The study assumes 25 % of total Carpatair origin and destination traffic will switch to Wizz Air.

See also footnote 101.

Based on the estimated number of passengers, the retained amount was considered of EUR 4 per departing passenger in 2009 and EUR 3,5 per departing passenger from 2010 to 2015.

Non- aeronautical revenues were estimated to be EUR 1 per embarked passenger as, according to the study, this was the amount received as non- aeronautical revenue by the airport from the other carriers operating point-to-point destinations in 2007.

While Carpatair believed security fees should be considered a non-economic activity revenue and should be excluded from aeronautical revenues steming from economic activities, the study assumes security fees and security costs of EUR 2 per passenger.

The study assumes incremental variable costs of EUR 70 per movement for aircraft handling basic services (fuel, consumables) and costs with electricity for lighting.

The study considers that in order to enable Wizz Air to operate at Timișoara International Airport with heavy airplanes (MTOW 71t), the airport had to undertake prior to the start of operations of Wizz Air PCN (pavement classification number) strengthening works for the runway, taxiways and apron. Carpatair believes that these investments for works for the PCN strengthening should be seen as incremental costs associated with the presence of Wizz Air at Timișoara International Airport. This is due to the fact that, according to Carpatair, all other carriers operated at Timișoara International Airport at that time with much lighter aircrafts which did not require an increased PCN of the airside infrastructure. According to Carpatair, a report received by the Airport Manager in March 2007

IPTANA Study of Timișoara airport airside infrastructure 2006.

calculated that to accept heavier aircrafts the investment for PCN strenghtening would amount to RON 19137000 (EUR 5679646). The Carpatair study considers this amount as incremental cost due to the presence of Wizz Air at the Airport in 2008 (as it considers this PCN improvement had to be done before Wizz Air started operations).

Given the commitments in the MoU to increase the capacity of the terminal to three million passenger per year, the investment with the terminal is also considered to be an incremental cost associated with the presence of Wizz Air (this investmest is estimated at EUR three million in 2009, EUR 10 million in 2010 and EUR 17 million in 2011). The study explains these estimations of capital expenditure to build the passenger terminal was based on the Government decison 1212/2007 from 4 October 2007 approving the airport strategic development plan of March 2006.

The assumed discount rate was 8 %.

According to the study, the average costs of capital in airlines industry during 2002 – 2009 was in range of 7-10 %.

(389) Based on these considerations, the NPV over seven years was estimated at EUR -30000471.

The NPV was estimated at EUR -32061035 for the pessimistic scenario and EUR -25879341 for the optimistic scenario.

Therefore, the study found that, based on the realistic scenario the agreement with Wizz Air was not profitable and, therefore, did not comply with the MEOP.

Given that an arrangement with Wizz Air was found ex-ante not to be profitable, the Carpatair study also considered as an alternative to such an arrangement, a scenario where a start-up aid for launching new routes was granted to Wizz Air (based on the 2005 Aviation Guidelines). This scenario assumed, inter alia, that the marketing support was to be granted only for new routes for three years, that no passenger would switch from Carpatair to Wizz Air and that the necessary capital expenditure would be significantly lower. Based on these assumption, in such a start-up aid scenario, the study calculated an NPV of 1977176 over seven years.

The Commission’s assessment of Carpatair study

(390) The Commission finds the Carpatair study to be based on a number of assumptions which do not seem reasonable, including the following:

For the reasons explained in recital (335), the Commission finds that the time framework for the assessment of the profitabily analysis should be limited to the initial duration of the 2008 Agreements and, therefore, should be shorter than seven years. Furthermore, the 2009 – 2015 period used in the Carpatair study is allegedly based on the Development Plan which, however, covered the whole period 2006 -2015. The time period taken into account in the study therefore seems arbitrary and does not reflect neither the duration of the Development Plan, nor the duration of the 2008 Agreements.

The number of Wizz Air passengers are assumed to increase by 292590 passengers from 2009 to 2010 in the realistic scenario, by 276743 in the pesimistic scenario and by 300513 in the optimistic scenario. These increases for the Wizz Air traffic are bigger than the increase of the overall traffic at the Airport foreseen in the Development Plan from March 2006 (namely an increase by 253423 passengers from 2009 to 2010). The study seems to suggest that such an increase is partly due to a switch of passengers of Carpatair to Wizz Air on competing routes. Nevertheless, in all three scenarios the overall increase in the number of estimated passengers at Timișoara International Airport is 359490 from 2009 to 2010, which is also bigger than the increase forecasted in the Development Plan for the overall traffic at the Timișoara International Airport (which was, as already mentioned of 253423 passengers). In addition, the Commission notes that the Development Plan foresaw as main trigger for the traffic increase a positive influence of the accession of Romania to the EU in 2007. The Commission therefore doubts that the increase in the traffic forecast as set in the original development plan of March 2005 when compared to the Development Plan of March 2006 could be entirely attributed to low cost airlines, or Wizz Air in particular. Consequently, the Commission finds that this assumption casts doubts on the reliability of the calculations included in the study.

The basic assumption of the study relates to the estimation as to which parts of the investment costs, if any, should be attributable to Wizz Air. This assumption is fundamental to the overall calculations of the profitability of the arrangement in question. For the reasons explained in recitals (372) to (378), the Commission finds that no incremental investment costs should be attributed to the presence of the Wizz Air at the Timișoara International Airport. Therefore, the approach in the study whereby the investments in the new terminal buiding and in the PCN strengthening of the airside infrastructure are to be considered as incremental costs is not acceptable. In addition, Romania submitted that TAROM airline also used aircraft above 70 MTOW (tons). Therefore, the assummption of the study to attribute the investments with the PCN strengthening of the runway, taxiway and apron to Wizz Air does not seem reasonable.

(391) Furthermore, the Commission also notes that the study assumes the incremental cash flows as the difference between the cash flow from the base scenario and the cash flows from the three scenarios assuming a Wizz Air agreement. Nevertheless, the study does not calculate the incremental cash flow in this way and each scenario assuming a Wizz Air agreement has its own incremental cash flow calculations (not by comparison to the base case scenario). This therefore casts further doubts on the data- related conclusions of the study.

(392) Therefore, the Commission finds the ex-ante profitability analysis provided by Carpatair cannot be used as a proof for non- compliance of the 2008 Agreements with the MEOP.

Ex-post profitability studies for the 2008 Agreements

(393) The expected profitability of the 2008 Agreements with Wizz Air is supported by ex post studies, which were provided to the Commission by:

Oxera;

Timișoara Polytechnic University; and

RBB.

(394) The Commission will provide below a short description of these ex-post studies as a complementary evidence to the findings of the ex-ante studies. Nevertheless, the ex-ante analysis of profitability remains the decisive evidence in the Commission’s assessment compliance with the MEOP.

Oxera

(395) On 27 October 2011, Oxera submitted an ex-post report prepared for Wizz Air. Oxera report calculated the following incremental costs and revenues in connection with the 2008 Agreements:

Table 20: Revenues per Wizz Air passenger departure 2008- 2010 (EUR)

Note: 1 Aeronautical revenues are shown after discounts and reimbursements of charges and before marketing payments. It is assumed that 50 % of revenue from landing charges is subject to the discounts set out in the AIP. 2 Aeornautical revenues from charges that are related to air traffic movements or weight (ie, landing and ground handling charges) have been estimated using outturn passenger numbers and assuming an Airbus A320-200 aircraft is used with 72 tonnes MTOW and a seat capacity of 180 assuming a load factor of 84 %. This represents Wizz Air’s average load factor in 2010 (for further details, see http://wizzair.com/about_us/news/#wizen068).

Source: Oxera analysis, based on data received from the Airport Manager.

Category200820092010Aeronautical revenues1Landing charges22,502,002,00Handling charges20,990,990,99Embarked passenger charges8,006,405,04PRM charges0,200,200,20Security charges10,0010,0010,00Non-aeronautical revenues0,781,161,74Total revenue22,4720,7520,70

Table 21: Expected costs associated with the 2008 Agreements (EUR)

Source: Oxera analysis, based on data received from the Airport Manager.

Category200820092010Operational costsPersonnel1,561,561,56Energy0,700,700,70Materials-0,45-0,45-0,45Services and other OPEX1,651,651,65

Marketing costs13,7015,5914,95Investment cost0,890,872,06Total cost18,0419,9220,47

(396) The results in Table 20 and Table 21 are based on the following considerations:

The aeronautical revenues are estimated based on a mix of an ex-post and an ex-ante approach. They are based on actual Wizz Air passengers and turnarounds (ex-post perspective). The discounts are estimated through an ex-ante approach. The aeronautical revenues assume a 25 % discount for landing charges

According to Oxera, this is equivalent to assuming that 50 % of Wizz Air’s traffic relates to new routes and therefore benefits from a 50 % discount on landing charges, with the remaining 50 % of traffic charged the full landing charges.

and a 20 % discount for the embarked passenger charges in 2009 and 30 % discount in 2010 (no discount on landing charges was assumed in 2008 due to the low number of Wizz Air turnaround in that year). Lighting and parking charges for the aircraft are excluded as Oxera believed it was not possible to ascertain the extent to which a private investor might have taken into account revenues from these two types of charges. The security charges are included.

An ex-ante approach was taken to estimate non-aeronautical revenues (e.g. related to car parking, car rentals, restaurants). These were assumed in the first year, i.e. 2008, to be broadly equal to non-aeronautical revenues accrued from airlines

Austrian Airlines, Carpatair, Deutsche Lufthansa, Tarom.

other than Wizz Air in the same year (i.e. about EUR 0,78 per departing passenger). For 2009 and 2010, it was assumed that non-aeronautical revenue per passenger to increase by 50 % per year, in line with the actual growth of non-aeronautical revenues at the airport in 2008.

Regarding incremental operating costs, the costs that vary with passenger numbers

Oxera used regression analysis to determine the part of the costs that might be considered fixed with regard to the changes in passenger numbers and the part of the costs that vary.

(personnel cost, cost of energy, cost of materials and costs of purchased services and other operational expenditure) have been attributed to Wizz Air in proportion to the airline’s share of passenger departures. According to Oxera, security costs are included in the incremental operating costs. The calculation is based on outturn data for the operating costs and is therefore ex-post.

Marketing payments have been calculated according to the Marketing Agreement based on the actual number of Wizz Air passengers and taking into account the amount of the airport fees estimated as explained above.

An ex-post approach was taken for the calculation of the incremental investment costs, which are based on investment data for the period 2007-2010 provided by the airport. The investments funded by the state for the terminal building and security equipment were not attributed to Wizz Air. According to Oxera, these were costs that would have incurred regardless of Wizz Air’s presence as they were due to Romania’s obligation to meet the requirement for acceding to the Schengen area. The depreciation costs for the investments funded through airport’s own resources were taken into account and have been allocated proportionate to Wizz Air’s passenger share of the passenger capacity of the airport. The passenger capacity has been estimated as being equal to the maximum number of passengers handled at the airport over the period 2007 – 2010 as Oxera understood from the Airport Manager that the Timișoara International Airport at the moment of the study (October 2011) operated at full capacity with regards to air traffic movements.

(397) On the basis of the above costs and revenues, Oxera found that the 2008 Agreements were incrementally profitable. The profit per passenger (i.e. the incremental contribution per passenger calculated as the difference between the estimates of incremental revenues and costs) are shown in Table 22.

Table 22: Incremental contribution associated with the 2008 Agreements (EUR)

Source: Oxera analysis, based on data received from the Airport Manager.

Category200820092010Average incremental revenue per departing passenger22,4720,7520,70Average incremental cost per departing passenger18,0419,9220,47Incremental contribution per departing passenger4,430,840,23Total incremental contribution1940410719837833

(398) Based on the calculations above Oxera found that the 2008 Agreements has a positive NPV of EUR 145249 over the three-year period of the 2008 Agreements, taken into account a discount rate of 12,02 %.

(399) Commission notes that the Oxera ex-post profitability assessment mixes an ex-ante and an ex-post data for calculating incremental revenues, while the incremental costs calculations are entirely ex-post.

(400) The Commission notes that both security charges and costs are included and assumes this will not affect the overall profitability calculation.

(401) Regarding aeronautical revenues, the Commission notes that lighting and parking charges (of EUR 2,10 per tonne of MTWO per use and EUR 0,15 per tonne of MTOW per use respectively) are excluded from the calculations, which represents a conservative approach. In addition, the assumed 20 % discount for the embarked passenger charge for 2009 and 30 % for 2010 seems over- estimated as this would assumed more than 300000 embarked passenger in 2009 and more than 500000 embarked passengers in 2010 which is not in line with the outturn data for Wizz Air passengers. The Commission finds that, based on the outturn data of Wizz Air passengers, no discount for the passenger charges should be assumed for 2008 and 2009 and only a 10 % discount rate should be assumed for 2010. However, the Commission notes that based on the formula in the Marketing Agreement, the correction of the airport charges (to take into account the lighting and parking charges and to correct the discount rate to be assumed for the passenger charge) would lead to a similar correction in the marketing payments by the same amount and, therefore, the overall profitability would not be affected.

(402) On the costs sides:

(a) The Commission finds the approach for calculating the incremental operating costs, based on outturn data available prior to the signature of the 2008 Agreements, reasonable.

(b) The Commission notes that the study included the incremental depreciation costs of the investments made by the Airport Manager’s own resources based on the expected Wizz Air share in the airport capacity. Nevertheless, as explained in recital (372), the Commission finds that the airport did not incur any investment costs induced by the presence of Wizz Air at the airport. Consequently, the Commission considers that the analysis should not include any depreciation costs associated with the agreements.

(403) For the reasons explained in recital (401), the Commission finds that overall the costs seems over- estimated.

(404) However, as the correction of the aeronautical revenues would trigger a similar correction of the marketing payment, this would not affect the profitability calculation. Moreover, the costs seem over- estimated. The Commission therefore concludes that the overall conclusion of the 2011 Oxera study would hold and the NPV would remain positive.

(405) Based on the recitals (399) to (404), the Commission finds the results of the report by Oxera from 27 October 2011 regarding the 2008 Agreements as acceptable.

Timișoara Polytechnic University

(406) The Airport Manager submitted a cost- benefit analysis undertaken by Timișoara Polytechnic University in April 2011. The analysis considers the marketing payments of the airport to Wizz Air as an investment of the Airport Manager towards achieving the objective to increase the number of passengers and implicitly revenues. The analysis takes into account two time horizons for this investment five years (2008- 2012) and seven years (2008- 2014). The study based its calculations on ex post data from 2008 to 2010, and estimations for the year 2011- 2014. To assess the profitability of the investment, the university calculated the NVP, by taking into account four elements:

The cost to the Airport Manager of annual marketing payments was made under the agreement with Wizz Air of EUR 77192,01 in 2008, EUR 2051031,32 in 2009 and EUR 223038 in 2010;

The incremental cost to the Airport Manager of serving Wizz Air was estimated as a proportion of total costs (1 % in 2009, 15 % in 2010, 20 % in 2011 and 22 % for the period 2011-2014). It can be noted that in each year the share of total costs allocated to Wizz Air is equal or greater to Wizz Air’s share in the total flights at the Airport;

With regard to the revenues received by the Airport Manager from Wizz Air, the actual revenues were used for 2008 to 2010, the 2010 AIP being used to forecast future airport charge revenues for the period 2011- 2014;

A discount rate of 5 % was applied.

(407) The analysis found that over five years (2008-2012), the investment comprising three years of upfront marketing expenditure in 2008 to 2010, accompanied by revenue from Wizz Air over the five year period 2008 to 2012, produces a NPV of EUR 590389,80 (approximately RON 2,5 million). Over a seven year time horizon (2008-2014), taking account of revenues over the period 2008 to 2014, the NPV rises significantly, to EUR 2282687,31 (approximately RON 10 million).

(408) The Commission notes a positive NPV calculated by the Timișoara Polytechnica. The Commission finds the approach to the allocation of overall costs reasonable (equal or greater to the share of Wizz Air flights in the total flights at Timișoara International Airport). Nevertheless, the study does not include any details regarding how revenues from Wizz Air were calculated (e.g. based on which assumed discounts and which data for passenger and turnarounds traffic was used). Therefore, the Commission does not have the necessary information to be able to assess whether the revenues estimations are reasonable. In addition, the profitability analysis does not seem to be specific to the 2008 Agreements and the 2010 Amendment Agreements, but covers a wider period. Therefore, the Commission cannot rely on the overall result of this study.

RBB

(409) The Airport Manager also submitted a study prepared by RBB compiled on 27 October 2011. RBB found that the 2008 Agreements had already proven profitable by 2010, and could only be expected to become more profitable as the ongoing annual benefits of Wizz Air’s operations at Timișoara International Airport continued to accrue, while marketing expenditures paid in 2008 to 2010 ceased. According to RBB, the incremental costs that can be attributed to Wizz Air between 2008 and 2010 range from EUR 3,5 million (RON 15,2 million) to EUR 3,8 million (RON 16,8 million), depending on the allocation of operating costs. This was compared to airport fees paid by Wizz Air, leading to incremental revenues of EUR 5,5 million (RON 23,9 million) in total. From this, a surplus of between EUR 2 million (RON 8,7 million) to EUR 1,7 million (RON 7,1 million) was derived. RBB concluded therefrom that the 2008 Agreements have produced a positive return for the Airport Manager. This calculation did not take account of non- aeronautic revenues.

(410) RBB further found that the operation of Wizz Air improved efficiency at the Timișoara International Airport, as Wizz Air carried a significantly higher number of passengers per aircraft movement than other airlines operating at Timișoara International Airport. This was argued to have contributed to the overall profitability of the Airport from 2008 to 2010, as total operating revenues increased by 39 %, while total operating costs increased by 22 %. Similarly, operating profits per passenger increased by 74 %, from EUR 1,4 (RON 5,9) to EUR 2,4 (RON 10,25) over the period from 2008 to 2010.

(411) Finally, RBB calculated that Wizz Air bore a share of aeronautic revenues commensurate to, or greater than, its share of both the passengers and aircraft movements at the Airport.

(412) Regarding, the incremental costs and revenues analysis, the Commission notes that RBB only based Wizz Air’s revenues on airport charges and thefore it can be considered conservative as it does not include non-aeronautical charges. The Commission finds the approach used in the calculation of the incremental costs and incremental revenues for the purposes of finding the incremental profitability steming from the 2008 Agreements with Wizz Air over the period 2008- 2010 reasonable.

Conclusion on economic advantage for the 2008 Agreements

(413) Based on the Oxera ex ante study reconstructed ex-post from 10 February 2015, as recalculated by the Commission (recital (380)) the arrangement between the Airport Manager and Wizz Air was expected to be incrementally profitable for the Airport Manager. The Commission notes the ex-post studies made by Oxera and RBB bring complementary evidence to the findings of the ex-ante Oxera study.

(414) Moreover, there are indications, in particular based on the Development Plan 2006-2015 that the 2008 Agreements with Wizz Air were part of an overall strategy and long-term effort towards overall profitability of the airport.

(415) Consequently, the Commission finds that a prudent market economy operator would have entered into such arrangement. It therefore concludes that the 2008 Agreements between The Airport Manager and Wizz Air did not confer an economic advantage on Wizz Air, which it would not have obtained under normal market conditions.

9.1.4.6.

Profitability analysis of the 2010 Amendment Agreements

(416) The Oxera Report from 10 February 2015 also calculated the incremental costs, revenues and profits that could have been expected at the time when the Amendment Agreements from 25 June 2010 were signed (summarised in Table 23 below). On 14 May 2015, Oxera re-submitted the expected profitability calculations to correct a data issue found in the report on 10 February 2015. The correction concerned an overestimation of the total costs of investments resulting from a double-counting of the investment funded by the state in the original submission. This data issue affected the expected profitability of the 2010 Amendment Agreement, which was originally underestimated.

(417) Oxera concluded that the Amendment Agreements from 25 June 2010 were expected to have a NPV of RON 2326 million.

Table 23: Oxera incremental revenues, incremental costs and incremental profits expected from the 2010 Amendement Agreements

(RON ‘000s)20102011Number of Wizz Air departing passengers[A]7192513665Aeronautical revenues[B]1253238Non-aeronautical revenues[C]1713336Total incremental revenues[D] = [B] + [C]2967574Operating costs[E]801157Depreciation[F]12023Total incremental costs[G] = [E] + [F]921181Incremental profits[H] = [D] – [G]2046394Discount factor1,00,9NPV2326

(418) The results in Table 23 are based on the following considerations:

(a) Forecasts of Wizz Air passenger traffic has been calculated based on outturn of Wizz Air passenger traffic in 2009 uprated by Eurocontrol’s (2008) estimate of expected growth in European air traffic.

Eurocontrol (2008), Challenges of Growth 2008, Summary report, p. 14.

(b) Forecasts of Wizz Air turnarounds have been calculated on the basis that Wizz Air operated Airbus 320-200 with a maximum take-off weight (MTOW) of 72 tonnes, a seat capacity of 180 and a load factor of 82 %. These assumptions are based on the assumptions in the ex-ante profitability analysis provided by Romania for the 2008 Agreements.

(c) Forecasts of aeronautical revenues are based on the per- departing passenger and per- turnaround charges and discounts stipulated in the 2010 Amendment Agreements. The analysis does not include the security fee as Oxera concluded that this falls outside the scope of MEOP assessment since such fees finances activities that fall under state responsibility in the exercise of its official powers (point 35 of the 2014 Aviation Guidelines).

(d) As in the case of the 2008 Agreement, the forecast of non-aeronautical revenues are derived from the estimates of non-aeronautical revenues per departing passenger from the ex-ante analysis provided by Romania uprated with expected inflation and applied to the traffic projections as explain in recital a) above.

(e) As explained above, regarding the incremental operating costs (staff services, energy, materials), The Airport Manager considers that about 20 % of the operating costs can be considered incremental, i.e. varying according to the number of passengers. The Oxera Report estimates incremental operating costs from the outturn data for the period 2007 – 2009 uprated by expected inflation and assuming 20 % of costs are incremental. Security costs are excluded.

(f) The Oxera Report estimates does not include any incremental marketing costs incured by the Airport Manager as the Marketing Agreement was terminated on 10 February 2010.

(g) As explained for the 2008 Agreements above, regarding the incremental investment costs, the Oxera Report takes into account the data provided by the Airport Manager for the investments undertaken by the Airport Manager and financed both by state funding and own resources for the period 2007 – 2011. The Oxera Report assumes no additional investments were expected as a result of Wizz Air operation. The governement funding received by the Airport Manager for terminal buidling and security equipment has been excluded as it was not considered to be attributable to the presence of Wizz Air at the Timișoara International Airport. The depreciation of other investments financed by the Airport Manager’s own resources was allocated based on the expected share of Wizz Air traffic relative to the airport capacity. The airport capacity was assumed to be three million passenger per year over the duration of the agreements. This assumption is based on the 2008 Memorandum of Understanding which stipulated that the airport’s capacity was expected to reach three million passenger per year by 2011. A straight line depreciation was considered when calculating the depreciation costs.

(h) The estimated profits have been discounted using the Commission’s reference rates, plus a margin of 100 basis points which results in a discount rate of 8,82 %.

(419) The Commission finds the approach taken by Oxera in estimating the passenger numbers and calculating on that basis the expected aeronautical revenue taking into account the rebates foreseen in the 2010 Amendments Agreements reasonable. The Commission also agrees with the exclusion of the the security fee for the reasons explained in recital (365).

(420) The Commission accepts the estimation of incremental non- aeronautical revenues. This is based on the Airport Manager’s estimation, based on previous year data, according to which non-aeronautical represent 15- 20 % of the Airport Manager’s revenues, which seems reasonable.

(421) The Commission also agrees with the discount rate used for the calculation, in particular given that the period of the analysis is less than a year.

(422) The Commission agrees that no incremental marketing costs are to be included in the calculations.

(423) As regards incremental operating costs, the Oxera Report bases itself on the assumption provided by Romanian according to which 80 % of the operating costs are fixed and only 20 % vary with the number of passengers. The Commission finds this assumption reasonable.

See footnote 92.

Oxera estimates the incremental operating costs by using outturn data for operating costs per departing passenger prior to the signature of the agreements and uprated for expected inflation and applying such per passenger operating costs to the estimated number of Wizz Air passengers. The Commission finds the estimates of the incremental operating costs therefore acceptable.

(424) Regarding the incremental investment costs, the Commission finds the approach in the Oxera Report reasonable. In particular, the Oxera Report does not expect any additional investments to be the result of Wizz Air operation at Timișoara International Airport. The Amendment Agreement did not bring any new commitments of the Airport Manager vis-à-vis Wizz Air in term of additional infrastructure compared to the 2008 Agreements assesed in recital (372) above. Therefore, the Commission agrees no investment was made which was due to the Wizz Air presence. Moreover, the Commission notes that the Oxera Study included the incremental depreciation costs of the investments made by the Airport Manager’s own resources based on the expected Wizz Air share in the airport capacity. Nevertheless, as explained in recital (372), the Commission finds that the Airport Manager did not incur any investment costs induced by the presence of Wizz Air. Consequently, the Commission considers that the analysis should not include any depreciation costs associated with the 2010 Amendment Agreements.

To the extent the depreciation costs were included, this assumption is conservative and over-estimates the incremental costs. In such a scenario the Commission has the same remark as in recital (379).

(425) On the basis of the above, the incremental costs, revenues and profits that could have been expected at the time when the 2010 Amendment Agreements were signed, as recalculated by the Commission based on the Oxera Report, are summarised in Table 24.

Table 24: Oxera incremental revenues, incremental costs and incremental profits expected from the 2010 Amendement Agreements recalculated by the European Commission

(RON ‘000s)20102011Number of Wizz Air departing passengers[A]7192513665Aeronautical revenues[B]1253238Non-aeronautical revenues[C]1713336Total incremental revenues[D] = [B] + [C]2967574Operating costs[E]801157Total incremental costs[F] = [E]801157Incremental profits[G] = [D] – [F]2165417Discount factor1,00,9NPV2462

Ex-post profitability study for the 2010 Amendment Agreements

(426) On 27 October 2011, Oxera sumbitted an ex-post report prepared for Wizz Air. Oxera’s report calculated the following incremental costs and revenues resulting from the 2010 Amendment Agreements.

Table 25: Revenues per Wizz Air passenger departure 2010- 2011 (EUR)

Note: 1 Aeronautical revenues are shown after discounts and reimbursements of charges and before marketing payments. It is assumed that 50 % of revenue from landing charges is subject to the discounts set out in the AIP. 2 Aeornautical revenues from charges that are related to air traffic movements or weight (ie, landing and ground handling charges) have been estimated using outturn passenger numbers and assuming an Airbus A320-200 aircraft is used with 72 tonnes MTOW and a seat capacity of 180 assuming a load factor of 84 %. This represents Wizz Air’s average load factor in 2010 (for further details, see http://wizzair.com/about_us/news/#wizen068). Source: Oxera analysis, based on data received from The Airport Manager.

Category200820092010Aeronautical revenues1Landing charges22,502,002,00Handling charges20,990,990,99Embarked passenger charges8,006,405,04PRM charges0,200,200,20Security charges10,0010,0010,00Non-aeronautical revenues0,781,161,74Total revenue22,4720,7520,70

Table 26: Estimated costs associated with the 2010 Agreements (EUR)

Source: Oxera analysis, based on data received from the Airport Manager.

Category200820092010Operational costsPersonnel1,561,561,56Energy0,700,700,70Materials-0,45-0,45-0,45Services and other OPEX1,651,651,65Marketing costs13,7015,5914,95Investment cost0,890,872,06Total cost18,0419,9220,47

(427) The results in Table 25 and Table 26 are based on the following considerations:

The period covered is June 2010 to February 2011 which is the validity of the 2010 Amendment Agreements.

The aeronautical revenues are estimated based on a mix of an ex-post and an ex-ante approach. They are based on actual Wizz Air passengers and turnarounds for 2010 (ex-post perspective) and estimated for January and February 2011 by Oxera based on the figure in December 2010 (ex-ante perspective). The discounts are estimated through an ex-ante and take into account the base tariffs and the rebates set out in the 2010 Amendment Agreements. A 10 % discount on landing charges and a 10 % discount on the embarked passenger charge is assumed. Security charges are included.

The non- aeronautical revenues per passenger departure was estimated in line with the average outturn non-aeronautical revenues for 2010 for Wizz Air, i.e. EUR 3,04 per passenger.

Regarding incremental costs, the costs that vary with passenger numbers (personnel cost, cost of energy, cost of materials and costs of purchased services and other operational expenditure) have been attributed to Wizz Air in proportion to the airline’s share of passenger departures. The calculation is based on outturn data for the operating costs and is therefore ex-post.

No marketing payments are included in the analysis as the Marketing Agreement was terminated in February 2010.

The incremental investment costs were estimated taking into account investment made in 2010. The investments funded by the state for the terminal building and security equipment were not attributed to Wizz Air. According to Oxera, these are costs that would have incurred regardless of Wizz Air’s presence as they were due to Romania’s obligation to meet the requirement for acceding to the Schengen area. Investments funded through Airport Manager’s own resources were taken into account. The investment costs financed from the Airport Manager’s own resources including depreciation and interest have been allocated proportionate to Wizz Air’s passenger share of the passenger capacity of the Airport. The passenger capacity has been estimated as being equal to the maximum number of passengers handled in 2010 as Oxera understood from the Airport Manager that at the moment of the study (October 2011), Timișoara International Airport operated at full capacity with regards to air traffic movements.

(428) On the basis of the above costs and revenues, Oxera found that, from an ex post perspective (with some ex ante elements), the 2010 Amendment Agreements were incrementally profitable. The profit per passenger (i.e. the incremental contribution per passenger calculated as the difference between the estimates of incremental revenues and costs) are show in Table 27.

Table 27: Incremental contribution associated with the 2010 Agreements (EUR)

Source: Oxera analysis, based on data received from the Airport Manager.

Category200820092010Average incremental revenue per departing passenger22,4720,7520,70Average incremental cost per departing passenger18,0419,9220,47Incremental contribution per departing passenger4,430,840,23Total incremental contribution1940410719837833

(429) Based on the calculations aboven Oxera found that the 2010 Amendment Agreements has a positive NPV of EUR 483147 over the nine- month duration of the 2010 Amendment Agreements. The cash flows from the 2010 Amendment Agreements have not been discounted as the duration of the 2010 Amendment Agreements was less than one year.

(430) Commission notes that the Oxera ex-post profitability assessment mixes an ex-ante and an ex-post for calculating incremental revenues, while the incremental costs calculations are entirely ex-post.

(431) Regarding aeronautical revenues, the Commission notes that lighting and parking charges are excluded from the calculations, which represents a conservative approach.

(432) The Commission notes that both security charges and costs are included and assumes this will not affect the profitability calculation.

(433) On the costs sides:

(a) The Commission finds the approach for calculating the incremental operating costs, based on outturn data available prior to the signature of the agreements reasonable.

(b) The Commission notes that based on the formula in the marketing agreement, the recalculation of the airport charges to take into account the lighting and parking charges also leads to the overestimation of the marking payments by the same amount.

(c) The Commission notes that the study included the incremental depreciation costs of the investments made by the airport own resources based on the expected Wizz Air share in the airport capacity. Nevertheless as explained in recital (372), the Commission finds that the Airport Manager did not incur any investment costs induced by the presence of the airline at the Timișoara International Airport. Consequently, the Commission considers that the analysis should not include any depreciation costs associated with the agreements.

(434) For the reasons explained in recital (433), the Commission finds that overall the costs seems over-estimated.

(435) Based on the fact that the correction of the aeronautical revenues would trigger a similar correction of the marketing payment which would not affect the profitability calculation and on the fact that the costs seem over- estimated, the Commission concludes that the overall conclusion of the 2011 Oxera study would hold and the NPV would remain positive.

(436) Based on the recitals (430) to (435), the Commission finds the results of the report by Oxera from 27 October 2011 regarding the 2010 Amendment Agreements as acceptable.

Conclusion on the economic advantage

(437) Based on the Oxera ex ante study reconstructed ex-post from 10 February 2015, as recalculated by the Commission (recital (425)), the 2010 Amendment Agreements were expected to be incrementally profitable for the Airport Manager. Consequently, the Commission finds that a prudent market economy operator would have entered into such arrangements. The Commission notes the ex-post report made by Oxera brings complementary evidence to the findings of the ex-ante Oxera study.

(438) Moreover, there are indications, in particular based on the Development Plan that the 2010 Amendment Arrangements with Wizz Air were part of the an overall strategy and long-term effort towards overall profitability of the airport.

(439) The Commission therefore concludes that the 2010 Amendment Agreements did not confer an economic advantage on Wizz Air, which it would not have obtained under normal market conditions.

9.1.5.

Conclusion on Measure 3

(440) For the reasons explained in recitals (301) to (439) the Commission finds that the 2008 Agreements and the 2010 Amendment Agreements do not constitute State aid within the meaning of Article 107(1) TFEU.

1. MEASURE 4 – FOREBEARANCE OF INVOICED AIRPORT CHARGES TO WIZZ AIR FOR THE PERIOD OCTOBER 2009 – FEBRUARY 2010

(441) In its Opening Decision, the Commission noted that it cannot be excluded that the forebearance of payment of airport charges provides an economic advantage to Wizz Air. The Commission noted that at the time of the Opening Decision, Wizz Air had not paid the airport charges for the period from October 2009 to February 2010 amounting to EUR 2,6 million. While the outstanding payments had been taken into account as receivables against Wizz Air in the Airport Manager’s financial statement, no court actions had been undertaken.

(442) Romania submitted that the Airport Manager sued Wizz Air for obtaining a writ of execution. At the same time, Wizz Air sued the Airport Manager for a writ of execution regarding outstanding payments for marketing services made by Wizz Air. According to Romania both court actions/arbitration awards were resolved with final decisions, upholding both payment requests. Romania stated that mutual debts were set off in line with the provisions of the Romanian Civil Code through the Settlement Agreement (recital (109)).

(443) The Commission recalls that the 2008 Agreements between the Airport Manager and Wizz Air were in line with the MEO Principle, i.e. it did not confer an advantage on Wizz Air, and therefore did not constitute State Aid.

Conclusion

(444) The Commission therefore concludes that since the outstanding airport charges were set off against Wizz Air’s claims for marketing payments in line with the applicable laws, the alleged State aid has become without object.

1. CONCLUSION

(445) In the light of the above, the Commission finds that the financing of the non-Schengen terminal development, the improvement of the runway and extension of the aircraft apron and the lighting equipment constitutes unlawful State aid which is compatible with the internal market on the basis of Article 107(3)(c) TFEU.

(446) The Commission further finds that the following measures do not constitute State aid: i) the public financing of the access road and the development of the parking area in 2007, ii) the public financing for the security equipment in 2008; iii) the airport charges in the 2007 AIP, 2008 AIP and 2010 AIP and iv) the 2008 Agreements with Wizz Air (including the 2010 Amendment Agreements).

HAS ADOPTED THIS DECISION:

Article 1

1. The public financing that Romania has provided in the period 2007- 2009 to the Airport Manager for the non-Schengen terminal development, the improvement of the taxiway and the extension of the apron and the lighting equipment amounting to RON 29194600 constitute State aid within the meaning of Article 107(1) of the Treaty on the Functioning of the European Union. It was implemented in breach of Article 108(3) of the Treaty on the Functioning of the European Union.

1. The State aid referred to in paragraph 1 is compatible with the internal market within the meaning of Article 107(3)(c) of the Treaty on the Functioning of the European Union.

Article 2

The public financing of the access road and the development of the parking area in 2007 and for the security equipment in 2008, the airport charges in the 2007 AIP, 2008 AIP and 2010 AIP and the 2008 Agreements with Wizz Air (including the 2010 Amendment Agreements) do not constitute State aid within the meaning of Article 107(1) of the Treaty on the Functioning of the European Union.

Article 3

This decision is addressed to Romania.

Done at Brussels, 24 February 2020.

For the Commission

Margrethe Vestager

Executive Vice-President