1

IRELAND‟S REGIONAL

AIRPORTS PROGRAMME

2015 – 2019

Airports Division July 2015

2

IIrreellaanndd’’ss RReeggiioonnaall AAiirrppoorrttss PPrrooggrraammmmee 22001155 –– 22001199

CONTENTS Page

PART 1

Background 5

Revised EU Guidelines on State aid to airports and airlines 9

The Altmark Judgment 12

Financing of Airports – Categorisation of Airport Activities and

Public Policy Remit

13

IWAK Study 14

Ireland‟s National Aviation Policy 15

The 2014 EU Guidelines and Ireland‟s National Framework 17

Conditions to be met by Regional Airports to qualify for funding

under PART 2 or 3 18

PART 2

Core Airport Management Operations/Activities (OPEX) 20

PART 3

Regional Airports Capital Expenditure Grant (CAPEX) Scheme 25

PART 4

Public Service Obligation (PSO) Air Services Scheme 31

PART 5

Transparency & Monitoring 34

3

PART 6

Appendices

1. Tables -

35

1.1 providing an analysis of financial performance based on the

most recent audited financial statements,

1.2 giving a breakdown of the administrative expenses for the

same period,

2.1 providing an analysis of projected performance for the

current year

2.2 giving a breakdown of projected administrative expenses for

the same period.

2. Guidance Notes - Regional Airports Core Airport management

operational expenditure Subvention (OPEX) Scheme

3. Guidance Notes - Application of 2014 EU Guidelines on State aid

to airports and airlines to CAPEX Scheme

4. Framework for Public Service Obligations (PSO) air services

5. EU Commission Decision: State aid SA. 39757 (2015N) – Ireland

– Regional Airports Programme 2015 – 2019.

The contents of this Regional Airports Programme reflect developments at EU level,

both in terms of the 2014 Guidelines on State aid to Airports and Airlines and the

relevant judgments, to date, arising from a number of cases heard before the European

Court of Justice. Any queries in relation to its contents should be addressed to –

Airports Division

(Regional Airports Programme 2015-2019)

Department of Transport, Tourism & Sport

44 Kildare Street

Dublin 2

IRELAND

Email: airports@dttas.ie

July 2015

4

IRELAND‟S REGIONAL AIRPORTS – Donegal Airport, Ireland West Airport

Knock (IWAK), Waterford Airport and Kerry Airport

Ireland‟s State Airports

1. 2. 3.

Dublin Shannon Cork

Donegal

IWAK

Kerry Waterford

1

2

3

5

Regional airports in Ireland were developed in the 1980s to provide for improved

connectivity both nationally and internationally. There was a recognition that such

airports could deliver significant social and economic benefits to the regions that they

serviced at a time when rail and road connections were poor. Accordingly, the focus of

policy on regional airports has been on assisting in optimising the contribution that the

airports can make to balanced regional development.

However, the development of the major interurban roads programme and improvements

to the rail network in the intervening period has reduced the importance of regional

airports for connectivity within Ireland. Today, regional airports are viewed as being

important because of a level of international connectivity that they bring to a region for

tourism and business. That connectivity is seen as being a significant contributory factor

underpinning Ireland‟s economic recovery and sustainable development into the future.

Following a Government Decision in June 2011, which arose from a Value for Money

Review published earlier in that year, the Exchequer provided financial support, under

the Regional Airports Programme 2011 – 2014, to four regional airports (Donegal,

Ireland West Airport Knock (IWAK), Kerry and Waterford), where previously it

supported six.

That financial support was administered by the Department of Transport, Tourism &

Sport through three separate Schemes –

A Core Airport Management Operational Expenditure Subvention (OPEX)

Scheme - the general economic interest that is served by an airport in a regional

location is recognised and supported. The Department of Transport, Tourism &

Sport‟s Core Airport Management Operational Expenditure Subvention Scheme

(OPEX) operated in accordance with the EU Commission‟s 2005 Guidelines on

airport funding. Under the Scheme, the Minister could compensate the regional

airports for “subventible losses” - the costs incurred in providing core airport

services, insofar as these costs could not be fully met by prudent commercial

management and from any surpluses generated by non-core activities, such as car

parking charges and catering. The Scheme expired on 31 December 2014.

PART 1

BACKGROUND

6

A Regional Airports Capital Expenditure Grant (CAPEX) Scheme - Additional

funding was also provided to the regional airports to support capital investment

under a Regional Airports Capital Expenditure Grant Scheme. In recent times, such

grant aid has only been given to those projects or project elements that are essential

for safety and security reasons and were limited to 90% of the total eligible costs.

The Scheme also ended in December 2014.

A Public Service Obligation (PSO) air services Scheme – which provides financial

support to airlines, based on a competitive tender, to operate essential air services. It

is a response to a need to ensure appropriate connectivity in areas not otherwise

served by adequate transport services. The PSO air services routes were

Donegal/Dublin (operated by Loganair) and Kerry/Dublin (operated by Aer

Arann/Stobart Air). Previously, PSOs air services were operated on Galway/Dublin

and Derry/Dublin routes (ceased in 2011). The contracts under the 2011 – 2014

Regional Airports Programme PSO Scheme were due to end in November 2014, but

were extended to end January 2015 to allow for a new public tender competition to

be held.

Table 1: Distances by road between the various airports

Airports

Distance by road (where appropriate) between airports

State Airports

IWAK

Donegal

Northern

Ireland

Dublin Cork Shannon Derry

Donegal 307kms

4hrs16mins

484kms

6hrs37mins

358kms

5hrs3mins

205kms

3hrs2mins

N/a 123kms

1hr52mins

Waterford 190kms

2hrs12mins

136kms

1hr59mins

167kms

2hrs28mins

292kms

3hrs59mins

N/a N/a

Kerry 300kms

3hrs29mins

105kms

1hr32mins

117kms

1hr38mins

265kms

3hrs32mins

N/a N/a

IWAK 214kms

2hrs48mins

274kms

3hrs46mins

158kms

2hrs5mins

N/a 206kms

3hrs2mins

202kms

2hrs52mins

Source: AA Route Planner

7

State funding of regional airports under the above three Schemes was administered by the

Department in compliance with the 2005 EU Guidelines on State aid to airports and

airlines1 and in the case of the PSO air services Scheme, in compliance with Regulation

(EC) No. 1008/20082. Furthermore, the Minister for Transport, Tourism & Sport made it

clear, in providing funding to the four regional airports, the importance of working

towards achieving financial viability in the medium term.

Table 2 provides details of the number of passengers (including those on the PSO routes)

carried, the Exchequer supports under the PSO Scheme for each route, along with level of

supports under the OPEX and CAPEX Schemes during the lifetime of the 2011 – 2014

Regional Airports Programme. In addition to the PSO air services on the Galway and

Derry routes ceasing in 2011, Exchequer supports under the OPEX and CAPEX Schemes

to both Galway and Sligo also ceased in 2011 following a Value for Money Review3.

1 EU OJ 2005/C 312/01

2 EU OJ L 293 31.10.2008: Regulation (EC) No 1008/2008 of the European Parliament and of the

Council of 28 September 2008 on common rules for the operation of air services in the Community 3 Value for Money Review of Exchequer Expenditure on Regional Airports Programme 2011

8

Table 2: Total number of passengers/Exchequer funding 2011 - 2014

Airport

Number of passengers (all)(1)

Exchequer funding (OPEX & CAPEX)

€m

2014 2013 2012 2011 2014 2013 2012 2011

Donegal 35,415 33,768 29,326 40,100 431,759 339,474 111,417 2,153,943

IWAK 703,265 665,393 685,781 654,553 2,474,013 2,667,599 1,288,651 665,189

Kerry 295,238 305,822 286,442 310,905 640,380 1,177,876 2,183,946 1,349,348

Waterford 34,607 28,169 76,554 81,521 1,572,004 1,483,085 2,566,794 2,067,653

Galway - - - 69,101 - - - 2,532,135

Sligo - - - 7,111 - - - 624,065

Totals 1,068,525 1,033,152 1,078,103 1,163,271 5,118,156 5,668,034 6,150,808 9,392,333

PSO

Route

Number of passengers (PSO only)(1)

Exchequer funding (PSO)(2)

€m

2014 2013 2012 2011 2014 2013 2012 2011

Donegal/

Dublin

23,755 21,404 19,796 25,187 3,701,295 3,598,803 3,451,683 4,719,428

Galway/

Dublin

- - - 11,547 - - - 2,190,078

Derry/

Dublin

- - - n/a - - - 2,857,753

Kerry/

Dublin

37,303 32,887 31,003 27,178 4,061,373 4,021,261 3,917,964 359,721

Totals 61,058 54,291 50,799 63,912 7,762,668 7,620,064 7,369,677 10,126,980

Total annual Exchequer funding under the Regional

Airports Programme 2011 - 2014 12,880,824 13,288,098 13,520,485 19,519,313

Total 2011 - 2014 Programme Exchequer funding 59,208,720

(1) Based on information provided by airports

(2) PSO supports are paid directly to the carrier and NOT to the airport

9

REVISED EU GUIDELINES

The EU‟s initiative to update and revise the 2005 Guidelines sets out the parameters for

both CAPEX and OPEX supports for regional airports post 2014, along with Start-Up aid

for airlines. The revised Guidelines (the „2014 Guidelines‟), which replace the 1994 and

2005 Guidelines and were adopted by the Commission on 20 February 2014, limit the

CAPEX and OPEX supports which can be given by the State (Exchequer and Local

Authorities) under any future Regional Airports Programme.

The Guidelines were published4 on 4 April 2014 and became applicable on that date.

Ireland is required to bring existing Schemes into line with the 2014 Guidelines within 12

months following that publication date. As the 2011 -2014 Regional Airports Programme

Schemes were due to expire at end 2014, it was decided that the Schemes post 2014

would be developed in line with the new Guidelines.

The 2014 Guidelines take stock of the new legal and economic situation concerning the

public financing of airports and airlines and specify the conditions under which such

public financing may constitute State aid within the meaning of Article 107(1) of the

Treaty on the Functioning of the European Union, and when it does constitute State aid,

the conditions under which it can be declared compatible with the internal market.

The Commission considers only State aid which is proportional and necessary to

contribute to an objective of common interest can be acceptable. In this context, it

believes that operating aid (OPEX) constitutes, in principle, a very distortive form of aid

and can only be authorised under exceptional circumstances. The general view expressed

through the 2014 Guidelines is that airports and airlines should normally bear their

operating costs and public investment should be used to finance the construction

(CAPEX) of viable airports meeting the demand of airlines and passengers.

However, in recognition of the difficulties that some smaller regional airports are faced

with, the 2014 Guidelines continues to allow compensation for uncovered operating costs

for a transitional period, where such airports qualify for such supports under the

Guidelines. This reflects the important role played by such airports in terms of regional

connectivity of isolated, remote or peripheral regions of the EU. This is of particular

importance to Ireland, given its island status and peripheral location in Europe.

4 EU OJ 2014/C 99/03

10

There are, however, a number of changes to the previous levels of permissible State

supports under the 2005 Guidelines, which will impact on regional airports from 2015

onwards and the need to secure alternative funding in addition to State support. Whereas

the 2005 Guidelines left open the issue of investment aid, the 2014 Guidelines define

maximum permissible aid intensities depending on the size of the airport.

Maximum level of investment aid - A maximum intervention rate of 75% investment

aid (CAPEX) for airports with less than one million passengers will apply from 2015.

This will most likely put some regional airports under greater pressure to fund the

balance of at least 25%. Under the 2011 – 2014 Regional Airport Programme CAPEX

Scheme, the State provided 90% of funding for essential safety and security related

investment projects at airports to ensure compliance with the associated regulations.

The 2014 Guidelines provide that regional airports located in peripheral regions of the

Union, with average traffic below 1 million passengers per annum, such as Ireland‟s four

regional airports, should contribute at least 25% to the financing of the total eligible

investment costs. However, the Guidelines also recognise that such airports may face a

funding gap which is higher than the maximum permissible aid intensities. Subject to a

case-by-case assessment and depending on the particular characteristics of each airport,

the investment project and the region served, intensity exceeding 75 % may be justified

in exceptional circumstances for such airports. If so, specific authorisation from the EU

Commission for increased funding will be sought by Ireland.

Under the 2014 Guidelines, the amount of the aid should not exceed the funding gap of

the investment project (so-called „capital cost funding gap‟), which is determined on the

basis of an ex ante business plan as the net present value of the difference between the

positive and negative cash flows (including investment costs) over the lifetime of the

investment. The residual value of the asset(s), along with the projected earnings to the

airport as a result of the investment, will also need to be determined and factored into the

level of the „capital cost funding gap‟.

Uncovered operating costs - In terms of compensation for uncovered operating costs

(OPEX), the 2014 Guidelines provide that such aid will be considered as contributing to

the achievement of an „objective of common interest‟, thereby compatible with the

internal market pursuant to Article 107(3)(c) of the Treaty on the Functioning of the

European Union, provided that such aid –

(a) increases the mobility of Union citizens and the connectivity of the regions by

establishing access points for intra- Union flights; or

11

(b) combats air traffic congestion at major Union hub airports; or

(c) facilitates regional development.

Operating costs funding gap - In order to provide proper incentives for efficient

management of the airport, the 2014 Guidelines also provide that the aid amount is, in

principle, to be established ex ante as a fixed sum covering the expected funding gap of

the operating costs (determined on the basis of an ex ante business plan) during a

maximum transitional period of 10 years.

That „operating funding gap‟ is now defined in the 2014 Guidelines as the operating

losses of the airport over the relevant period, discounted to their current value using the

cost of capital, that is to say the shortfall (in Net Present Value terms) between airport

revenues and operating costs of the airport. Additional clarification received by the

Department from the Commission (DGCOMP) clearly states that such costs-v-revenues

should be identified on the basis of EBITDA5. The 2014 Guidelines also provide that the

initial operating funding gap is the average of the operating funding gaps (i.e. the amount

of operating costs which is not covered by revenues) during the five years (2009 to 2013)

that precede the beginning of the transitional period.

Member States are required, when calculating the operating costs funding gap, to

distinguish between the airport‟s costs associated with economic activities and those

associated with non-economic activities over that 5-year period. Only those costs relating

to economic activities will be eligible for OPEX supports and will form the basis of

calculations to identify the „operating funding gap‟. Costs associated with non-economic

activities will be dealt with outside of State aid rules and under „Public Policy Remit‟

(see page 13).

While the maximum permissible aid amount during the whole transitional period will be

limited to 50% of the initial funding gap for a period of 10 years, the 2014 Guidelines

also provide that under the current market conditions, airports with annual passenger

traffic of up to 700,000 may face increased difficulties in achieving the full cost coverage

during the 10-year transitional period. For this reason, the maximum permissible aid

amount for airports with up to 700,000 passengers per annum will be 80% of the initial

operating funding gap for a period of 5 years after the beginning of the transitional

period.

Where the 80% maximum is applied, the Commission will reassess the need, on a case by

case basis, for continued specific treatment beyond that 5-year period and the future

5 Earnings Before Interest Taxes Depreciation and Amortization

12

prospects for full operating cost coverage for this category of airport, in particular with

regard to the change of market conditions and profitability prospects. The Department

will also carry out a Value-for-Money Review on the 2015-2019 Programme, which will

reflect the outcomes of any such Commission reassessment.

THE ALTMARK JUDGMENT

In finalising the 2014 Guidelines, the EU Commission has again drawn attention to the

Court judgment in the Altmark case, which established case law in respect of State aid.

The Court ruled that compensation for public service activities does not constitute State

aid within the meaning of Article 107 of the EC Treaty provided that the following four

criteria are met:

(1) the recipient undertaking must actually have public service obligations to discharge

and the obligations must be clearly defined;

(2) the parameters on the basis of which the compensation is calculated must be

established in advance in an objective and transparent manner;

(3) the compensation cannot exceed what is necessary to cover all or part of the costs

incurred in the discharge of public service obligations, taking into account the relevant

receipts and a reasonable profit for discharging those obligations; and

(4) where the undertaking which is to discharge public service obligations, in a specific

case, is not chosen pursuant to a public procurement procedure which would allow for the

selection of the tenderer capable of providing those services at the least cost to the

community, the level of compensation needed must be determined on the basis of an

analysis of the costs which a typical undertaking, well run and adequately provided with

means of transport so as to be able to meet the necessary public service requirements,

would have incurred in discharging those obligations, taking into account the relevant

revenues and a reasonable profit for discharging the obligations.

The Commission has stated that when it complies with the conditions established by the

Altmark judgment, compensation for public service obligations imposed on an airport

operator does not constitute State aid.

13

FINANCING OF AIRPORTS - CATEGORISATION OF AIRPORT

ACTIVITIES UNDER THE 2014 GUIDELINES & PUBLIC POLICY REMIT

The Commission's 1994 Aviation Guidelines set out the view that the construction or

enlargement of infrastructure projects (such as airports, motorways, bridges, etc.)

represents a general measure of economic policy which cannot be controlled by the

Commission under the Treaty rules on State aids. However, the 2014 Guidelines make it

clear that the activity of airlines, which consists in providing transport services to

passengers and/or undertakings, constitutes an economic activity.

The 2014 Guidelines position is supported by the judgment in the "Aéroports de Paris”

case6 in which the European Court of Justice ruled in favour of this latter view and held

that the operation of an airport, consisting in the provision of airport services to airlines

and to the various service providers, also constitutes an economic activity. In its

judgment in the "Leipzig-Halle airport" case7, the General Court clarified that the

operation of an airport is an economic activity, of which the construction of airport

infrastructure is an inseparable part.

Therefore, the airport activities that are covered by this Programme can be categorised as

follows:

(i) construction of airport infrastructure and equipment or facilities that directly

support them that are safety and/or security related

(ii) operation of the infrastructure, comprising the maintenance and management

of airport infrastructure

In addition to the activities listed at (i) and (ii) above, the 2014 EU Guidelines also

provide for the distinction to be made in respect of airport activities that have an

associated economic activity and those that don‟t. The latter normally fall under the

responsibility of the State in exercising its official powers, come within the area of

“Public Policy Remit” and, as they are not of an economic nature, do not fall within the

scope of State aid Rules.

6 Case T-128/98 Aéroports de Paris v Commission, [2000] ECR II-3929, confirmed by Case C-82/01,

[2002] ECR I-9297, paragraphs 75-79. 7 Joined Cases T-443/08 and T-455/08 Mitteldeutsche Flughafen AG and Flughafen Leipzig Halle GmbH

v Commission, ("Leipzig-Halle airport" judgment), [2011] ECR II-1311, in particular paragraphs 93

and 94; confirmed by Case C-288/11 P Mitteldeutsche Flughafen and Flughafen Leipzig-Halle v

Commission, [2012] not yet reported.

14

Public Policy Remit – in reflecting the judgments in the above two cases, the 2014

Guidelines also provide clarification regarding the funding of certain non-economic

activities at an airport that normally fall within a „Public Policy Remit‟. Activities such as

air traffic control, police, customs, firefighting, those necessary to safeguard civil

aviation against acts of unlawful interference and the investments relating to the

infrastructure and equipment necessary to perform those activities are considered in

general to be of a non-economic nature. Therefore, under this Regional Airports

Programme, public funding of such investments will fall within Ireland‟s „Public Policy

Remit‟ for regional airports and will not constitute State aid.

Subject to the availability of resources, the Exchequer will provide compensation8 to the

airports at 90% of the total cost of such eligible capital investments (PPR - C).

Furthermore, airports will be compensated (at 100%) for operational costs relating to

such non-economic activities (PPR - O). This will require regional airports to maintain

separate cost accounting for core airport activities. Payments under the OPEX Scheme

will only be made in respect of those core airport operations with associated economic

activity.

IWAK9 STUDY

In an Irish context, the outcomes of the IWAK Study, our largest regional airport,

published in December 2013, also provide a basis for the planning of future supports for

regional airports. The options and opportunities for the growth and development of the

Airport were the subject of a Study Group established following a meeting of the

Taoiseach, the Minister and Minister of State for Transport, Tourism and Sport and local

Deputies with the IWAK Board on 28 January 2013 and chaired by Deputy John

O‟Mahony.

The Minister for Transport, Tourism & Sport presented the IWAK Study Group Report to

Government on 16 December 2013, with the Study recommendations and the impact of

those outcomes on future State supports for regional airports, being noted at that time by

Government.

In summary, the recommendations of the Study Group are that -

8 Separate Contracts, under this Programme, between the airports and the Department will provide

for supports under Public Policy Remit 9 Ireland West Airport Knock

15

It is reasonable to expect that, in line with draft EU Guidelines, regional airports

should be financially viable within at most a 10 year period.

However, a policy position which would see Exchequer support terminate at the end of

2014, would leave a situation whereby IWAK, and likely all regional airports, would

face closure within a short timeframe.

Given the contribution that key regional airports make to their regional and local

economy, as illustrated in the case of IWAK, they should be given an opportunity

beyond 2014 to grow to a viable position.

In facilitating their future development, regional airports should have local authority,

local business and Exchequer support.

In the case of IWAK, the route to growth lies in developing tourism numbers. Local

interests, with the support of national agencies, should draw up and implement a plan

to develop this market.

In the case of Exchequer support, a framework should be developed by the Department

for approval by the EU Commission for implementation at the end of the current

programme (i.e. from 2015).

That framework should provide a level of certainty around support over a multiannual

period, where regional airports can provide a business plan leading to stand alone

commercial viability within a ten year period.

The framework should include requirements in relation to –

o Local authority, business and Exchequer involvement,

o Catchment areas served,

o Size of airports and level of public support,

o Route to viability,

o In the case of Exchequer capital support, conditions relating to safety and

security.

In the case of IWAK, it is also recognised that in relation to the present debt level a

separate parallel solution, not involving Exchequer support, must be identified.

These recommendations have been taken into consideration in compiling both Ireland‟s

National Aviation Policy and this Regional Airports Programme.

IRELAND‟S NATIONAL AVIATION POLICY

Ireland‟s National Aviation Policy will be adopted in 2015. That Policy proposes that

regional airports be given the opportunity beyond 2014 to grow to a viable, self-

sustaining position, particularly considering the contribution that they make to their

16

regional and local economy. As a result, the Policy provides that Exchequer support

(OPEX and CAPEX) for the regional airports will be continued, where appropriate,

beyond 2014. This decision will facilitate the airports in developing and implementing

new business plans leading to self-sufficiency within a ten year period. Central to these

will be the need for regional and local business investment.

There are many demands on the funding available to the Department and maintaining an

attractive Regional Airports Programme will be challenging post 2014, particularly when

competing with public transport provision and road maintenance financial requirements.

The Policy recognises the impact that the 2014 Guidelines on State aid to airports and

airlines will have in delivering future State supports to the regional airports and that

careful consideration will be given to how such supports are best distributed between the

three Schemes (CAPEX, OPEX and PSO).

Finally, with a particular focus being placed on maintaining and working towards

improving essential international connectivity services, it will be essential that the

regional airports work together and create synergy in operational activity and promote the

overall role of regional airports as access points for both tourism (e.g. the Wild Atlantic

Way) and business benefits.

In summary, Ireland‟s National Aviation Policy contains a number of specific policy

proposals in respect of regional airports, including –

Ireland will implement an EU approved Framework (Regional Airports Programme

2015 - 2019) of supports for regional airports.

Exchequer support for operational expenditure at regional airports will be phased out

over a maximum period of 10 years, in accordance with EU Guidelines.

Exchequer support for capital expenditure will be limited to safety and security

related expenditure.

Clear business plans will be required from the airports seeking supports. In

considering funding to regional airports, the Department will take account of the

level of regional involvement, including investment by local authorities and/or

business.

PSO contracts, following tender competitions, for Kerry/Dublin and/or

Donegal/Dublin air services will run for two years initially and, subject to a

satisfactory review after 18 months, may be extended by a maximum of one year.

17

THE 2014 EU GUIDELINES AND IRELAND‟S NATIONAL FRAMEWORK

In the absence of some form of State support after 2014, it is likely that all of the current

four regional airports would be forced to close over time. A funding model comprising of

a combination of financial supports from the Exchequer, Local Authorities and local

business interests would be more difficult to realise should Exchequer support be

withdrawn. This position was made clear by the IWAK Study and noted by Government

on 16 December 2013.

Therefore and in accordance with the 2014 EU Guidelines, a National Scheme or

Framework has been designed (i.e. this Programme) for approval by the EU Commission,

reflecting the main principles underlying Ireland‟s policy on funding supports for the

regional airports over the lifetime of the Programme. It has been decided to continue

supports to the regional airports, where appropriate, under the two Schemes – Core

Airport Management Operational Expenditure Subvention (OPEX) and Capital

Expenditure Grant (CAPEX) and to airlines under the Public Service Obligation (PSO)

Air Services Scheme.

Having decided to continue providing State support for the four regional airports, the

2014 EU Guidelines clarify the circumstances under which the Department of Transport,

Tourism & Sport or other State Agencies would be allowed to provide such direct

financial assistance.

In determining which airports will continue to receive OPEX supports under this

Programme, the „initial operating funding gap‟ for each airport will be identified on the

basis of operating costs relating to economic activities not covered by revenues (using

EBITDA criteria) for the years 2009 to 2013, in respect of each airport. Non-core

activities not directly linked to the airport‟s core activities, such as the provision or

operation of shops, restaurants or car parks, will not be regarded as eligible for State

subvention. However, subsidisation of core airport operations from such commercial

activities would be encouraged to promote the airport‟s financial sustainability.

More specifically, future State support will be rebalanced towards capital expenditure,

concentrated on safety and security related infrastructure projects. The level of future

PSO supports on the other hand, including the number and frequency of subvented

routes, will be very much dependent on the cost/benefit of such a Scheme and in

particular, the outcome of the review of the contract(s) after the first 18 months of

operation.

18

It should be noted, however, that while the 2014 Guidelines provide a period of 10 years

for regional airports to achieve a position of self-sufficiency in terms of operating costs,

that period is a maximum and should not be interpreted as a period of continued State

support.

Following the publication of the 2014 EU Guidelines on State aid to airports and airlines,

the character of future State supports to regional airports in Ireland has changed. A

greater onus will be placed on airports to demonstrate the economic benefits of such

support to the region, with a particular emphasis on demonstrating the airport‟s path to

viability. The 2014 EU Guidelines are quite specific in reflecting the view of the

Commission in that regard. With respect to capital infrastructure investment projects, for

example, the Guidelines provide that any investment which does not have satisfactory

medium-term prospects for use, or diminishes the medium-term prospects for use of

existing infrastructure in the catchment area, cannot be considered to serve an objective

of common interest.

Therefore, to qualify for State support post 2014, regional airports will have to provide

the following –

a study showing the economic value of the airport to the region, including details

of the catchment area served,

a five-year business plan demonstrating the airport‟s path towards commercial

viability over the course of the plan and the details and level of support to be

provided by Local Authorities and local business interests,

the safety and security related infrastructural projects, if any, planned for

implementation by the airport during the period of the business plan,

distinguishing between those with associated economic activity from those

without such activity,

a statement of the local funding available towards the overall costs of the planned

infrastructural project(s).

The Department of Transport, Tourism & Sport will, if so required, fund up to 33% of the

total costs of the economic study on the understanding that the balance of the total costs

is funded locally (Airport, Local Authority etc).

CONDITIONS TO BE MET BY REGIONAL AIRPORTS TO QUALIFY FOR

FUNDING UNDER PART 2 OR 3

19

It should be noted by airports that, in accordance with the 2014 EU Guidelines, works on

an individual investment projects can only commence after an application has been

submitted to the Department for such projects and approval granted accordingly.

In addition to the above and as a requirement of continued State support during the life of

this Programme, regional airports in receipt of such supports must demonstrate annually

evidence of progress towards viability. Where such progress cannot be demonstrated over

a consecutive 3-year period, State supports may be suspended pending a detailed

examination of the future prospects of the airport.

20

PART 2

CORE AIRPORT MANAGEMENT OPERATIONS/ACTIVITIES (OPEX)

In order for State supports under the OPEX Scheme to be compatible with the internal

market pursuant to Article 107(3)(c) of the Treaty, the cumulative conditions set out in

section 5.1.2 of the 2014 EU Guidelines must be met, namely –

(a) Contribution to a well-defined objective of common interest

(b) Need for State intervention

(c) Appropriateness of State aid

(d) Existence of incentive effect

(e) Proportionality

(f) Avoidance of undue negative effects on completion and trade

Ireland will operate the 2015 – 2019 Regional Airports Programme OPEX Scheme in

strict compliance with the above conditions.

Eligible Activities for Exchequer Subvention – The eligible Core Airport Management

Expenditure activities under the OPEX Scheme include the following management and

general overheads associated with the operation of the airports -

Wages and Salaries, Pension costs, Rent, Rates, Insurance, Light & Heat, Repairs and

Maintenance, Training, Flight Checking Services, Baggage handling, Ground handling,

Passenger flows within terminal buildings, Cleaning & Refuse and Bank Charges.

While the majority of these activities are in respect of economic activities at Ireland‟s

regional airports, some will relate to costs associated with non-economic activities (under

Public Policy Remit) such as security, fire fighting and ATC services etc.

Under Ireland‟s 2015 – 2019 Regional Airports Programme OPEX Scheme, airports will

be required to maintain separate cost accounting distinguishing between economic and

non-economic activities. The tables provided at Appendix 1 to this Programme in respect

of the OPEX Scheme provide for such a distinction. The Department will closely monitor

the airports‟ accounts to ensure that public funding for non-economic activities is not

used to compensate airports for any possible shortfalls under the OPEX Scheme.

21

Non-eligible Activities for Exchequer Subvention – In addition to operational costs

associated with non-economic activities (Public Policy Remit) and in line with the 2014

EU Guidelines, expenditure on commercial activities not directly linked to the airport‟s

core activities, including the construction, financing, use and renting of land and

buildings for offices, ground handling, storage, hotels, industrial enterprises, shops,

restaurants and car parks will not be regarded as eligible expenditure for the purpose of

assessing the level of subvention under the OPEX Scheme.

However, airport operators will be encouraged to generate revenues from such activities

to enhance commercial performance and profits of the regional airport concerned and

thereby minimise and, if possible, remove the requirement for subvention.

Ex-Ante Aid Amounts – As detailed in PART 1 of this Programme, the maximum

permissible aid amount will be based on the average of the airport‟s operating funding

gap during the five years 2009 to 2013. Where the 80% maximum is applied under

paragraph 130 of the 2014 EU Guidelines, the maximum amount of operating aid in

respect to economic activities that will be available to the airport will be established as an

ex-ante fixed sum over 5 years (i.e. the total maximum aid available for the period 2015

to 2019 inclusive). The amount of aid to be paid to qualifying airports in respect of any

particular year (during the period 2015 to 2019) will be set out in a contract between the

Department and the airport and will be subject to the overall amount of voted Exchequer

funds available to the Minister in respect of that year being sufficient to pay the amount

due to all airport operators who have contracts under the Scheme. Where sufficient funds

are not available to pay the full amount otherwise due to all airport operators under such

contracts, the total amount paid to each airport operator shall be determined by allocating

the total Exchequer funds available on a pro rata basis to each airport operator.

Any overpayments arising from the submitted projected operating costs and the airport‟s

subsequent annual audited financial statement for that year will be offset against the

following year‟s submission. Any over-payment in 2019 must be returned to the

Department as soon as practicable following the completion of the airport‟s annual

audited financial statements for that year.

Administration of the scheme - The following stages will apply to the implementation

of the scheme on a year by year basis:

1. Invitation to each airport to submit proposals for the year in question, together with

relevant financial projections

2. Subvention application

22

3. Appraisal of proposals received from each airport

4. Payment process

5. Monitoring (ex-post monitoring and evaluation of effectiveness of scheme by

reference to identified performance indicators)

Submission of Proposals for subvention - The airports will be invited on an annual

basis to submit an estimate of the amount of subvention, relating to economic activities

only, that may be required for the year in question, having regard to the expected shortfall

between (1) proposed expenditure on eligible activities and (2) revenue from eligible

activities and any contribution earned from non-core activities (using EBITDA).

Irrespective of the estimated amount submitted by qualifying airports, the supports

available under the 2015 – 2019 Regional Airports Programme OPEX Scheme may not

exceed the maximum annual allocation established following the calculation of the

„operational costs funding gap‟ under paragraph 130 of the 2014 EU Guidelines.

Specifically, each applicant will be required to submit -

a table providing an analysis of projected performance for the year in question,

together with a further table giving a breakdown of projected administrative

expenses, and

a table providing an analysis of financial performance based on the most recent

audited financial statements for the previous year, together with a further table giving

a breakdown of the administrative expenses for that same period.

The Chairman of the Board must sign these tables, which involve separate reporting of

core airport management operations/activities and any non-core activities. The tables are

set out in Appendix 1 and guidance notes on their completion are given in Appendix 2.

In association with the tables set out at Appendix 1, the process will entail the submission

of the following financial and business strategy information:

General Information on the airport, to include the Airport‟s Business Plan and most

recent audited accounts and financial statements.

Commentary on its core airport activities as stipulated in the contract and the

efficiency with which those activities are being delivered in terms of quality and

cost.

Strategy on airport charges and commercial revenue to maximise its potential as a

financially sustainable airport.

23

Information on projected passenger numbers and the range of existing and new air

services.

Contribution the airport makes to local / regional economy, including evidence of

importance of role that the airport plays in terms of the level of international

connectivity that it brings to the region for tourism and business.

Relationship and foreseen impact on operational expenditure of capital expenditure

programme.

Declaration from the regional airport, including -

o an undertaking that public funds would not be used for any other purpose,

including the use of PPR funding supports

o a statement of compliance with the 2014 EU Guidelines

o a copy of statement from an independent auditor in respect of the

mechanisms utilised in distinguishing between the economic and non-

economic activities regarding operating costs (i.e. OPEX related v PPR

related).

The Department reserves the right to seek additional information as may be required,

such as more detailed financial projections for the year in which subvention is sought and

for subsequent years.

Appraisal of Subvention Proposals - An Appraisal Panel will be formed comprising

relevant officials from the Department‟s Airports Division and the Department‟s

Financial Advisor. Additional technical advice will be sought, as necessary, from the

Irish Aviation Authority (IAA) and the Aviation Services Division (ASD) of the

Department of Transport, Tourism & Sport.

Specific subvention allocations will be appraised in terms of:

Assessment of the financial case made by the Airport Company, including a review

of the Company‟s Business Plan, maximisation of non-core airport revenues and

assessment of financial risk to the company in event of reduction or deferral of

subvention.

Insofar as practical, particularly in the light of the relatively small scale of the

regional airport operations, analysis of the costs – based on a typical airport of its

size and location that is well run and adequately equipped with infrastructure and

necessary equipment/facilities to meet necessary operational obligations - taking into

account the relevant revenues and reasonable profit for discharging such obligations.

24

Prevention and, as may be appropriate, correction of any over-payment or under-

payment of the airport subvention that may emerge through examination of the

audited financial statements

Projected outcome, by reference to key performance indicators identified in the

contract with the regional airport, e.g.

implementation of the IAA and the ASD recommendations

passenger throughput, particularly inbound tourists

A report on the outcome of the appraisal process, including any proposed subvention

allocations will be submitted to the Minister for approval.

Airports will be formally notified of the subvention allocation (if any), subject to any

conditions as may be imposed to promote efficiency, revenue generation and value for

money to the State.

Claim and Payment Procedures - Payments under this scheme will be made in

accordance with Government Financial Procedures and the relevant procedures and

control systems operated by Airports Division for payment of subvention to regional

airports.

Review and Monitoring - Airports Division will also monitor the performance of each

airport and the effectiveness of the operational grant scheme as a whole on an ex-post

basis by means of the following:

Review of actual outcome of scheme – i.e. performance indicators results (e.g.

fulfilment of licensing obligations, passenger throughput,) in respect of each airport.

Consultation with IAA and ASD regarding the satisfactory performance, or otherwise,

of mandatory safety and security requirements.

Review the annual audited financial statements, in consultation with the Department‟s

Financial Advisor.

Qualifying airports will be expected to demonstrate a path towards future viability as

required under the 2014 EU Guidelines.

25

PART 3

CAPITAL EXPENDITURE GRANT (CAPEX) SCHEME

Previously, Exchequer support for capital investment projects at regional airports was

directed through the National Development Plan (NDP) 2000 - 2006 programme and the

Transport 21 Investment Framework. Under these, carefully targeted investments in

some regional airports received grant assistance, where demand for additional air services

were satisfactorily demonstrated and where an economic case was made to support and

justify increased investment. Priority was given to projects deemed necessary by the

Irish Aviation Authority (IAA) for compliance with safety standards set down in ICAO

Annex 14.

The Exchequer provided (under the Regional Airports Programme 2011 – 2014) 90% of

funding (CAPEX) for essential safety and security investment projects at airports to

ensure compliance with safety and security regulations. Other infrastructure projects had

to be funded from own resources/local investment.

Under the 2015 – 2019 Regional Airports Programme CAPEX Scheme, funding will

again be restricted to safety and security related projects, but with an associated economic

activity only. Safety and Security related investment projects with no associated

economic activity will be dealt with outside of the EU Rules on State aid and under

Ireland‟s „Public Policy Remit‟ (see page 13)

In order for State supports under the CAPEX Scheme to be compatible with the internal

market pursuant to Article 107(3)(c) of the Treaty, the cumulative conditions set out in

section 5.1.1 of the 2014 Guidelines must be met, namely –

(a) Contribution to a well-defined objective of common interest

(b) Need for State intervention

(c) Appropriateness of State aid

(d) Existence of incentive effect

(e) Proportionality

(f) Avoidance of undue negative effects on completion and trade

Ireland will operate the 2015 – 2019 Regional Airports Programme CAPEX Scheme in

strict compliance with the above conditions.

26

In recognition of the distinction being made under this Programme, the Irish Aviation

Authority (IAA) and/or the Aviation Security Division (ASD) of the Department of

Transport, Tourism & Sport, will be consulted to determine what investment projects fall

within the category of added economic value to the airport and those that do not.

In providing State supports (Exchequer and Local Authority) to regional airports for

capital projects, the 2014 EU Guidelines on State Aid to airports and airlines require that

airports with average traffic below 1 million passengers per annum should, normally,

contribute at least 25% to the financing of the total eligible investment costs.

State supports, therefore, will be limited to 75% of the total eligible costs of safety

and security related projects coming under the CAPEX Scheme, unless Commission

approval has been granted following the submission of a business case by the airport in

accordance with paragraphs 99 to 103 of the 2014 Guidelines (see page 10 of this

Programme). Such business cases must be submitted for the consideration of the

Department of Transport, Tourism and Sport in the first instance and where appropriate,

forwarded thereafter to the Commission for approval to exceed the 75% maximum aid

intensity level.

When preparing submissions, the „template‟ provided at Appendix 3 provides guidance to

airports for calculating the capital cost funding gap. In addition, submissions should, at a

minimum, contain the information listed in the table at page 30 of this Programme.

Where such a case is being submitted for approval, it is important for airports to note that

the level of aid intensity, while exceeding the 75% maximum provided in the EU

Guidelines, may not exceed the actual capital costs funding gap of the investment project.

Furthermore, works on an individual investment projects can only commence following

approval from the Department.

Eligible airports – subject to meeting the required criteria under the 2014 EU

Guidelines, the possible beneficiaries of the financial assistance under this Programme‟s

CAPEX Scheme are the four regional airport companies:-

Connaught Airport Development Company Ltd. (Ireland West Airport Knock, Co.

Mayo)

Aerphort Idirnáisiúnta Dhún na nGall Teo. (Carrickfin, Co. Donegal)

Kerry Airport plc (Farranfore, Co. Kerry)

South East Regional Airport Waterford (Killowen, Co. Waterford)

27

Submission of proposals by airports - The Department will formally invite proposals

from each of the four regional airport based on a 5-year planning framework. Where a

proposal is successful, the approved project(s) would be eligible under this Regional

Airports Programme for grant assistance (CAPEX) for the period 2015-2019.

Airports will be required to provide the following information in respect of each

proposal:

Business Plan covering the period of the proposed investment, from planning to

completion of the project(s)

An Economic Evaluation of airport‟s contribution to the region

Statement identifying the airport‟s path to viability with clear measurable targets

for delivery

Recent audited accounts and financial statements

Statement on access to and availability of additional sources of funding

Airport charges strategy

Corporate structures in place for project management and cost control

Specific information in respect of proposed projects, including -

1. Description of project, including timelines

2. Estimated cost

3. Amount being provided from local funding sources

4. Safety or security case supporting project

5. Recommendation of the IAA/ASD, as appropriate

6. Consideration of alternative approaches to compliance with IAA/ASD

recommendations

Project (CAPEX) appraisal and selection by the Department of Transport, Tourism

& Sport -

(i) Preliminary Screening - This aims to assess if the project(s) has sufficient merit to

justify a full detailed appraisal. This would take the form of a screening process to

ensure that proposed projects, as set out in the airport‟s business plan, are broadly

consistent with the objectives of the Scheme and that sufficient information has been

provided to allow for detailed appraisal. Urgent safety & security projects necessary to

comply with national/international regulations could be approved at this stage, depending

on the nature and scale of projects, without reference to the capital appraisal process set

out below.

(ii) Capital Appraisal - The type and depth of an appraisal is dependent on the size and

nature of the proposed project and will be proportionate to its anticipated scale. The

28

resources to be spent on appraisal will be commensurate with the nature and estimated

cost of the project and the degree of complexity of the issues involved. Accordingly:

a simple assessment may be carried out for minor safety and security related projects

with an estimated cost below €0.5 million, such as projects involving minor

refurbishment works and upgrading of existing facilities;

safety and security projects costing between €0.5 million and €5 million will be

subject to a single appraisal incorporating elements of a preliminary and detailed

appraisal; and

an in-depth appraisal may be carried out for safety and security projects costing in

excess of €5 million.

Such an appraisal will be carried out in line with Department of Public Expenditure and

Reform‟s Public Spending Code10

.

Expert Advice - Expert advice (financial/aviation/engineering etc) will be sought where

necessary to assist in the appraisal process.

Monitoring and reporting - The regional airports are responsible for implementing the

approved projects. Works on individual projects can only commence following approval

by the Department. If works start before such approval is granted, any aid awarded in

respect of that individual project will be considered incompatible with the internal market

and will be dealt with accordingly. Cost overruns would be met by the airport company

concerned. For monitoring and reporting purposes, the regional airports should establish

suitable project management structures. Each regional airport in receipt of funding will

be required to provide a quarterly report to the Department on procurement, project

implementation, and expenditure profiling, specifically highlighting any existing or

anticipated problems. The Department reserves the right to inspect projects „on-site‟ at

any stage of implementation.

Funding arrangements - Detailed guidance on the claim and payment processes will be

made available to the Airport at contract stage (i.e. a contract will be entered into

between the Department and the Airport setting out the terms and conditions applying

under the CAPEX Scheme). However, continued State supports to the airport will

conditional on the airport satisfactorily demonstrating progress towards viability and

access to/availability of additional sources of funding.

10

Public Spending Code” means the public spending code: expenditure planning, appraisal &

evaluation in the Irish public service – (www.publicspendingcode.per.gov.ie)

29

Freedom of Information - All information submitted by airports in receipt of funding

will be subject to the Freedom of Information Act 2014.

30

Table: Business Case in accordance with paragraphs 99 and 103 of the 2014 EU

Guidelines on State aid to airports and airlines should include -

Description of Airport

Location – other transport modes

Ownership

Economic Value to Region

Catchment area – population etc

Past performance – pax. nos./

financial

Routes serviced and frequencies

Nearest airport – travel times etc

Project Description Details

Duration of planned works

Costs – cost/benefit analysis

Funding Gap Calculations

Funding Sources – private sector etc

Tendering of suppliers

Statement re meeting medium term

prospects for use

Counterfactual Information If no State aid received

If limited State aid (e.g. 75%)

received

Future Plans 5 year Business Plan

Other development plans

New routes/new carriers

Increased pax. nos. per annum

Path towards future viability

Projected financials

Growth Studies conducted?

„Clearly Defined Objective of general

Interest‟ Statement demonstrating:

- accessibility of the region

- stimulate regional development

- creation of new jobs

- impact on tourism

- planned infrastructure

development (non airport) e.g.

roads/rail

Case to exceed 75% maximum aid

intensity „Funding Gap‟ v 75%

Why can‟t 25% own funding/local

supports be met

Contingency plans if above

maximum aid intensity not

approved

Paragraph 93 EU Guidelines

acknowledgement Statement of compliance with terms

of paragraph

31

PART 4

PUBLIC SERVICE OBLIGATION (PSO) AIR SERVICES SCHEME

The Communication from the Commission, 2012/C 8/03 (European Union framework for

State aid in the form of public service compensation) provides that State aid falling

outside of the scope of Decision 2012/21/EU (which only refers to air links with islands)

may be declared compatible with Article 106(2) of the Treaty if it is necessary for the

operation of the SGEI (Services of General Economic Interest) concerned and does not

affect the development of trade to such an extent as to be contrary to the interest of the

Union.

It is widely accepted that a commercial operator would not provide services on either the

Donegal/Dublin or Kerry/Dublin routes in the absence of a subvention by the State. The

entrustment of the operation of an SGEI (i.e. the operation of air services on those two

routes) by Ireland is also in line with the Commission Communication on State Aid

Modernisation Com (2012) 209 final, which points out that State aid policy should focus

on facilitating well-designed aid targeted at market failures and objectives of common

interest to the Union.

Commission Communication 2012/C 8/03 also provides that responsibility for the

operation of the SGEI must be entrusted to the undertaking concerned by way of one or

more acts, the form of which may be determined by each member State. The act must

include –

The content and duration of the public service obligations,

The undertaking and, where applicable, the territory concerned,

The nature of any exclusive or special rights assigned to the undertaking by the

granting authority,

The description of the compensation mechanism and the parameters for

calculating, monitoring and reviewing the compensation, and

The arrangements for avoiding and recovering any overcompensation.

The contract entered into between the Department and the operator(s) form the basis for

the act of „entrustment‟, in accordance with the above Commission Communication.

Such obligations or „Services‟ may be defined by Member States to be of General

Economic Interest (SGEI), thereby allowing the imposition of a PSO on services to

airports in such peripheral or development regions, where the route is considered –

32

“vital for the economic development of the region … to the extent necessary to

ensure… the adequate provision of scheduled air services satisfying fixed

standards of continuity, regularity, capacity and pricing, which ... carriers would

not assume if they were only considering their commercial interest.”

EU Council Regulation (EEC) No. 1008/2008

The Communication also provides that where the responsible authority, when entrusting

the provision of the service to the undertaking in question, has complied with Union rules

in the area of public procurement, State aid in respect of the public service obligation will

be considered compatible with the internal market on the basis of Article 106(2). In

awarding the current PSO air services contract for the Donegal/Dublin and Kerry/Dublin

routes, Ireland met with the requirements of Articles 16 and 17 of EU Council Regulation

(EEC) No. 1008/2008 of 24th

September 2008 and its obligations under Union rules in the

area of public procurement.

Under those Regulations, the Government established a Public Service Obligation (PSO)

Air Services Scheme in respect of two routes in Ireland. Such Schemes provides financial

support to airlines, based on a competitive tender, to operate essential services serving

peripheral or development regions, considered vital for the economic development of

those regions and which would not otherwise be provided on a commercial basis.

The contracts for the previous PSO air services Scheme – which provided financial

support to Loganair (Donegal/Dublin route) and Stobart Air (Kerry/Dublin route) were

extended from 3rd

November 2014 (when the contracts were due to expire) to end

January 2015 to undertake a new public procurement competition. Such PSO services are

based on a competitive tender to operate essential services in response to a need to ensure

adequate connectivity in areas not otherwise served by adequate transport services.

While the 2014 EU Guidelines on State aid to airports and airlines have application to

other Union Guidelines on State aid, the current PSO air services Scheme and any future

air services Schemes must comply in particular with Regulation (EC) No. 1008/2008.

Those Regulations require that a notice of invitation to tender must be published in the

Official Journal of the European Union, with a deadline of 2 months for submission of

tenders from the date of publication of the notice.

A new PSO air services competition (public tender process) was run in late 2014 for the

Donegal/Dublin and Kerry/Dublin routes post 2014. The successful bidder (Stobart), will

service both PSO routes and operate the contract from 1 February 2015 to 31 January

2016. While the contract duration will initially be for that 2-year period, the outcome of

33

the review process to be conducted after 18 months from the commencement of the

contract may lead to an extension not exceeding 1 year. The implications of this change

in policy will mean that the new contract may expire on 1 February 2016 or the same date

in 2017. In either event, a decision will be required on whether or not to continue

providing supports under the Scheme and if continued, to one or both routes. A detailed

evaluation of the services will be carried out at that time. Wider policies on Aviation and

Integrated Transport as well as Government Policy on Spatial Planning and Tourism will

also have to be considered.

At Appendix 4 the framework for the granting of any further public service obligations to

airlines is set out. The framework reflects the contents of the Commission

Communication 2012/C 8/03 on the application of Article 106(2) of the Treaty on the

Functioning of the European Union to State aid in the form of public service

compensation granted to certain undertakings entrusted with the operation of services of

general economic interest.

34

Section 8 of the 2014 EU Guidelines provides that, in the interest of improving the

transparency of State aid in the Union, steps should be taken to ensure that the Member

States, economic operators, the interested public and the Commission have easy access to

the full text of all applicable aid schemes in the aviation sector and to pertinent

information about individual aid measures.

This position arises from the Commission Communication published per OJ C198/30 on

27 June 2014, whereby each Member State is required to have a comprehensive State aid

website in place by 1 July 2016. In the interim, as Ireland prepares to meet that

obligation, the full text of Ireland‟s Regional Airports Programme 2015 – 2019, along

with detailed information relating to each of the three Schemes (PSO, OPEX and

CAPEX) under that Programme, will be made available on the Department‟s Website in

accordance with the criteria set out in Section 8 of the 2014 Guidelines.

In compliance with the 2014 EU Guidelines, such information will be kept for a period of

at least 10 years, will be updated every 6 months and will be available to the interested

public without restrictions.

Furthermore, in order to allow the Commission to monitor the progress of the phasing out

of operating aid to airports and its impact on competition, Ireland is required, under the

2014 EU Guidelines, to submit an annual report to the Commission on such progress by

the airports.

These reporting, transparency and monitoring requirements will also be reflected in the

contracts between the Department and the airports under the 2015 – 2019 Regional

Airports Programme OPEX and CAPEX Schemes. PSO air services contracts post 1st

February 2018 (as the current contract operates until 1 February 2016, with a possible

extension for a further year following completion of a successful review of performance

after the first 18 months) will also contain reference to these requirements.

PART 5

TRANSPARENCY & MONITORING

35

PART 6

APPENDICES

36

Appendix 1: Core Airport Management Operational Expenditure Subvention Scheme

Table 1.1 Analysis of Airport Operations extracted from most recent audited financial statements

Year Ending [Insert Date]

1 2 3

Non Core Airport Activities

Totals per

audited P&L Description ***

Original Budgeted

(YEAR) Amounts

Variation Between (YEAR)

Budget & Final (YEAR) Outturn Details Re Variations****

Sales

Retail Sales 0 0

Airport Charges,

Commissions and landing

fees 0 0

Other Commercial

Revenue 0 0 0 0 0 0

Cost of Sales

Opening Stock 0 0

Purchases 0 0

0 0

Closing stock 0 0 0 0 0 0

Gross profit / (loss) 0 0 0 0

Administrative expenses

excluding Depreciation

(table 1.2) 0 0 0 0

Subtotal 0 0 0 0 EBITDA

Depreciation (table 1.2) 0 0

Capital expenditure

grants released 0 0 0 0 0 0

Operating profit / (loss) 0 0 0 0

Interest receivable 0 0 0 0

Interest payable 0 0 0 0

Exceptional Items 0 0 0 0

Net Profit / (loss) before

Subvention 0 0 0 0

Revenue grants

received / receivable ** 0

Net Profit / (Loss)

Notes: Signature:

** operational expenditure subvention grants received.

** allocation of revenue or costs between core and non core activities - where judgement used, set out rationale for approach taken

*** allocation of revenue or costs between core Chairman of Board

**** Please provide information - cause etc - on material variations Date:

(Economic)

Core Airport Activities

(Non-Economic)

Core Airport Activities

37

Appendix 1: Core Airport Management Operational Expenditure Subvention Scheme

Table 1.2 Administrative Expenses breakdown for most recent set of audited accounts [insert date]

1 2 3

(Economic)

Core Airport Activities

(Non-Economic)

Core Airport Activities

Non Core Airport

Activities Total Description **

Original Budgeted

(YEAR) Amounts

Variation Between (YEAR)

Budget & Final (YEAR) Outturn Details Re Variations***

Wages & Salaries 0 0 0 0

Employer's PRSI contributions 0 0 0 0

Directors' pension costs 0 0 0 0

Staff pension costs 0 0 0 0

Directors' Salary 0 0 0 0

Computer Software & Costs 0 0 0 0

Foam 0 0 0 0

Fuel 0 0 0 0

Rent payable 0 0 0 0

Rates 0 0 0 0

Insurance 0 0 0 0

Advertising & marketing 0 0 0 0

Light & heat 0 0 0 0

Flight Checking Services 0 0 0 0

Repairs and maintenance 0 0 0 0

Training 0 0 0 0

printing, Stationery and Office exps 0 0 0 0

Telephone & Postage 0 0 0 0

Motor Expenses 0 0 0 0

Uniform & clothing 0 0 0 0

Travelling and Subsistence 0 0 0 0

legal, Professional & Consultancy 0 0 0 0

Accountancy 0 0 0 0

Audit 0 0 0 0

Cleaning & Refuse 0 0 0 0

Bank Charges 0 0 0 0

Sundry 0 0 0 0

licences & Subscriptions 0 0 0 0

Subtotal 0 0 0 0

Depreciation on buildings 0 0 0 0

Depreciation on fixtures & Equipment 0 0 0 0

Depreciation on motor vehicles 0 0 0 0

Subtotal 0 0 0 0

Total 0 0 0 0

Notes:

*Non exhaustive list - Insert or delete line items as appropriate

**Allocation of revenue or costs between core and non core activities - where judgement used, set out rationale for approach taken

***Please provide information - causes, etc - on material variations

Administrative expenses*

38

Appendix 1: Core Airport Management Operational Expenditure Subvention Scheme

Table 2.1 Analysis of Airport Operations for forthcoming 12 months financial period.

Year Ending [Insert Date]

Non Core

Airport

Activities

Total per

audited P&L Description ***

Final (YEAR)

Figures

Projected movement between

final (YEAR) figures & projected

(YEAR)

Details re projected

movements****

Sales

Retail Sales 0 0

Airport Charges, Commissions and

landing fees 0 0

Other Commercial Revenue 0 0 0 0 0 0

Cost of Sales

Opening Stock 0 0

Purchases 0 0

0 0

Closing stock 0 0 0 0 0 0

Gross profit / (loss) 0 0 0 0

Administrative expenses

excluding Depreciation (table

1.4) 0 0 0 0

Subtotal 0 0 0 0

Depreciation (table 1.2) 0 0

Capital expenditure grants

released 0 0 0 0 0 0

Operating profit / (loss) 0 0 0 0

Interest receivable 0 0 0 0

Interest payable 0 0 0 0

Exceptional Items 0 0 0 0

Net Profit / (loss) before

Subvention 0 0 0 0

Operating subvention sought

Notes:

*** Allocation of revenue or costs between core and non core activities - where judgement used, set out rationale for approach taken Signature:

**** Please provide information - causes, etc - on material variations

Chairman of Board

Date

(Economic)

Core Airport Activities

(Non-Economic)

Core Airport Activities

39

Appendix 1: Core Airport Management Operational Expenditure Subvention Scheme

Table 2.2 Administrative Expenses breakdown for forthcoming year [insert date]

Administrative expenses*

Core Airport

Activities

Non Core Airport

Activities Total Description ** Final (YEAR) Figures

Projected movement between final

(YEAR) figures & projected (YEAR)

Details re projected

movements***

Wages & Salaries 0 0 0

Employer's PRSI contributions 0 0 0

Directors' pension costs 0 0 0

Staff pension costs 0 0 0

Directors' Salary 0 0 0

Computer Software & Costs 0 0 0

Foam 0 0 0

Fuel 0 0 0

Rent payable 0 0 0

Rates 0 0 0

Insurance 0 0 0

Advertising & marketing 0 0 0

Light & heat 0 0 0

Flight Checking Services 0 0 0

Repairs and maintenance 0 0 0

Training 0 0 0

printing, Stationery and Office exps 0 0 0

Telephone & Postage 0 0 0

Motor Expenses 0 0 0

Uniform & clothing 0 0 0

Travelling and Subsistence 0 0 0

legal, Professional & Consultancy 0 0 0

Accountancy 0 0 0

Audit 0 0 0

Cleaning & Refuse 0 0 0

Bank Charges 0 0 0

Sundry 0 0 0

licences & Subscriptions 0 0 0

Subtotal 0 0 0

Depreciation on buildings 0 0 0

Depreciation on fixtures & Equipment 0 0 0

Depreciation on motor vehicles 0 0 0

Subtotal 0 0 0

Total 0 0 0

Notes:

*Non exhaustive list - Insert or delete line items as appropriate

**Allocation of revenue or costs between core and non core activities - where judgement used, set out rationale for approach taken

***Please provide information - reasons, etc - on material projected movements

39

40

Appendix 2

Guidance Notes

Regional Airports

Core Airport management operational expenditure Subvention Scheme (OPEX)

1. These notes should be read in conjunction with PART 2 of the Programme and the

tables for completion in Appendix 1. The key objective of these tables is to identify

separately (a) core airport management operations/activities and (b) non-core activities.

The tables also provide for making the distinction between economic and non-economic

activities. All key underlying assumptions used in completing the tables should be

identified, referring to the company‟s business plan or other information requested. Those

information requirements will therefore support and augment, where necessary, the

financial information and underlying assumptions accompanying the tables at Appendix

1.

2. The Tables at Appendix 1 should be prepared by the Airport Company and signed by

the Company Chairman, where necessary drawing on the latest audited financial

statements and the key assumptions set out by the board and management when

compiling them.

3. If the two sets of activities are not accounted for separately in the audited financial

statements, the Company is requested to analyse the financial information based on its

best assessment of the allocation of revenues and costs between core airport management

activities and non-core activities. Where there is no separate accounting of the two sets of

activities in the audited financial statements, all key assumptions on revenue and cost

allocation should be explained.

4. All key revenue and cost items should be identified and full commentary should be

supplied on -

The average charge and projected charge per passenger

The average core airport cost per passenger and projected cost per passenger

The potential for increased core airport and non-core revenue generation and

what steps the airport is taking to minimise and, if possible, eliminate subvention

by the State

The efficiency of core airport operations by reference to key elements of its cost

base.

5. Insofar as depreciation policies are concerned, these should be fully disclosed and

explained.

41

Appendix 3

Extracts of Relevant Provisions in the Guidelines

The maximum permissible amount of State aid is expressed as a percentage of eligible

costs (the maximum aid intensity11

) [para 97].

In order to be proportionate, investment aid to airports must be limited to the extra costs

(net of revenues) which result from undertaking the aided project/activity rather than

the alternative project/activity that the beneficiary would have undertaken in the

counterfactual scenario, that is to say, if it had not received the aid. Where no specific

counterfactual is known, in order to be proportionate, the amount of the aid should not

exceed the funding gap of the investment project (so-called “capital cost funding

gap12

”), which is determined on the basis of an ex ante business plan as the net present

value of the difference between the positive and negative cashflows (including investment

costs) over the lifetime of the investment. For investment aid the business plan should

cover the period of the economic utilisation of the asset [para 99].

The aid intensity must not exceed the maximum permissible13

aid intensity and should, in

any case, not go beyond the actual funding gap of the investment project [para 100].

Calculating the Funding Gap of the Project (CAPEX only)

Distinction must be made between investment projects with an associated economic

activity (CAPEX) and those without any associated economic activity (Public Policy

Remit)

Forecast costs and revenues from Business Plan for scenario “with investment” for

the reference period

Calculate residual value of investment after the reference period

11 Aid intensity is defined as meaning the total aid amount expressed as a percentage of eligible costs, both figures expressed in net present value terms at the moment the aid is granted and before any deduction of tax or other charges.

12 Capital cost funding gap is defined as meaning the net present value of the difference between the positive and negative cash flows, including investment costs, over the lifetime of the investment in fixed capital assets.

13

The maximum aid intensity for an airport with less than 1 million passengers per annum is up to 75%

Guidance Notes

Application of 2014 EU Guidelines on State aid to airports and airlines to CAPEX Scheme

42

Forecast costs and revenues for scenario “without investment” for the reference

period (if counterfactual is known) and calculate project incremental operating

revenue and costs (as a difference from “with” and “without” investment scenarios)

Calculate discounted net cashflows (funding gap) of the project using appropriate

discount rate

Illustrative Example in Calculating Project Funding Gap and Maximum Aid

Example Data

Discounted Value* Non Discounted

Value

Total Investment Costs €150,000 (all eligible - spread over 3 years)

Net Project Revenue €1,000 p.a. after 1st

year

Life of Investment 20 years

Discounted Investment Costs €142,970

Discounted Net Revenue € 12,085

=>Project Funding Gap € 130,885 (=Net Eligible Costs in this case)

Maximum Investment Aid Intensity 75%

=> State Aid €107,227 (calculated today as % of Eligible Costs NPV)

* Calculated Using Discount Factor of 5%

“Exceptional Circumstances” – Assessed on a Case by Case Basis

The 2014 EU Guideline notes that “investment projects at certain airports with average

traffic below 1 million passengers per annum located in peripheral regions of the Union

may result in a funding gap which is higher than the maximum permissible aid intensities.

Subject to a case-by-case assessment and depending on the particular characteristics of

each airport, investment project and the region served, intensity exceeding 75% may be

justified in exceptional circumstances” [para 103].

Subject to the case-by-case assessment, and given the stipulation in para 100 that aid

should “in any case, not go beyond the actual funding gap of the investment project”, it

may be that a case could be made in this example for State aid funding of up to this

project funding gap of €130,885.

43

Appendix 4

Regional Airports

Framework for Public Service Obligations (PSO) Air Services Scheme

Following the completion of the public tender process, as outlined in PART 4 of this

Programme, the specifics of the Public Service Obligation in respect of the route

concerned will be set out in a contract between the Minister for Transport, Tourism and

Sport and the selected airline. That contract will be in accordance with Article 17(1) of

EU Regulation 1008/2008 (see below) and will specify -

(a) the nature and the duration of the public service obligation;

(b) the number and frequency of the services to be provided;

(c) the minimum capacity (seats) of the aircraft assigned to operate the services;

(d) the range of fares that may be applied;

(e) the parameters for cancelled and delayed flights;

(f) the parameters for calculating, controlling and reviewing the compensation;

(g) the arrangements for avoiding and repaying any overcompensation.

Unlike the current contracts, the duration of the new contracts (post 2014) will initially be

for a 2-year period, with the outcome of the review process to be conducted after 18

months from the commencement of the contract leading to the possibility of an extension

not exceeding 1 year.

Compensation

The actual total amount of the compensation already determined and payable by the

Department of Transport, Tourism and Sport will be determined annually, on an ex-post

basis, and will be limited to the actual losses incurred, having regard to actual costs,

revenues and if applicable, profit margin, by the successful airline in operating the

services, subject, as a maximum, to the limit of the amount stated in the contract in

respect of each year.

Payments may be claimed by the airline on a regular instalment basis, in accordance with

the procedures set out in contract. A balancing payment will be payable at the end of each

contract year, subject to receipt by the awarding authority of appropriately documented

claims accompanied by certification from the carrier's auditors, in accordance with the

terms of the contract.

The contract will also include provision for the maximum limit of compensation in any

year(s) to be increased in certain circumstances, at the sole discretion of the awarding

44

authority and as an exceptional matter, in the event of extraordinary changes in operating

conditions, and without prejudice to the provisions governing the termination of the

contract. Requests for an increase in the maximum limit of subvention in any year(s) will

be considered by the awarding authority only in circumstances where the developments

in question could not have been anticipated by the tenderer or are due to factors entirely

outside the control of the tenderer.

References:

Article 16

General principles for public service obligations

1. A Member State, following consultations with the other Member States concerned and

after having informed the Commission, the airports concerned and air carriers operating

on the route, may impose a public service obligation in respect of scheduled air services

between an airport in the Community and an airport serving a peripheral or development

region in its territory or on a thin route to any airport on its territory any such route being

considered vital for the economic and social development of the region which the airport

serves. That obligation shall be imposed only to the extent necessary to ensure on that

route the minimum provision of scheduled air services satisfying fixed standards of

continuity, regularity, pricing or minimum capacity, which air carriers would not assume

if they were solely considering their commercial interest.

The fixed standards imposed on the route subject to that public service obligation shall be

set in a transparent and non-discriminatory way.

2. In instances where other modes of transport cannot ensure an uninterrupted service

with at least two daily frequencies, the Member States concerned may include in the

public service obligation the requirement that any Community air carrier intending to

operate the route gives a guarantee that it will operate the route for a certain period, to be

specified, in accordance with the other terms of the public service obligation.

3. The necessity and the adequacy of an envisaged public service obligation shall be

assessed by the Member State(s) having regard to:

(a) the proportionality between the envisaged obligation and the economic

development needs of the region concerned;

(b) the possibility of having recourse to other modes of transport and the ability of

such modes to meet the transport needs under consideration, in particular when

existing rail services serve the envisaged route with a travel time of less than

three hours and with sufficient frequencies, connections and suitable timings;

(c) the air fares and conditions which can be quoted to users;

(d) the combined effect of all air carriers operating or intending to operate on the

route.

45

4. When a Member State wishes to impose a public service obligation, it shall

communicate the text of the envisaged imposition of the public service obligation to the

Commission, to the other Member States concerned, to the airports concerned and to the

air carriers operating the route in question.

The Commission shall publish an information notice in the Official Journal of the

European Union:

(a) identifying the two airports connected by the route concerned and possible

intermediate stop-over point(s);

(b) mentioning the date of entry into force of the public service obligation; and

(c) indicating the complete address where the text and any relevant information

and/or documentation related to the public service obligation shall be made

available without delay and free of charge by the Member State concerned.

5. Notwithstanding the provisions of paragraph 4, with respect to routes where the

number of passengers expected to use the air service is less than 10 000 per annum, the

information notice on a public service obligation shall be published either in the Official

Journal of the European Union or in the national official journal of the Member State

concerned.

6. The date of entry into force of a public service obligation shall not be earlier than the

date of publication of the information notice referred to in the second subparagraph of

paragraph 4.

7. When a public service obligation has been imposed in accordance with paragraphs 1

and 2 the Community air carrier shall be able to offer seat-only sales provided that the air

service in question meets all the requirements of the public service obligation.

Consequently that air service shall be considered as a scheduled air service.

8. When a public service obligation has been imposed in accordance with paragraphs 1

and 2, any other Community air carrier shall at any time be allowed to commence

scheduled air services meeting all the requirements of the public service obligation,

including the period of operation that may be required in accordance with paragraph 2.

9. Notwithstanding paragraph 8, if no Community air carrier has commenced or can

demonstrate that it is about to commence sustainable scheduled air services on a route

inaccordance with the public service obligation which has been imposed on that route, the

Member State concerned may limit access to the scheduled air services on that route to

only one Community air carrier for a period of up to four years, after which the situation

shall be reviewed.

This period may be up to five years if the public service obligation is imposed on a route

to an airport serving an outermost region, referred to in Article 299(2) of the Treaty.

10. The right to operate the services referred to in paragraph 9 shall be offered by public

tender in accordance with Article 17, either singly or, in cases where justified for reasons

46

of operational efficiency, for a group of such routes to any Community air carrier entitled

to operate such air services. For reasons of administrative efficiency, a Member State

may issue a single invitation to tender covering different routes.

11. A public service obligation shall be deemed to have expired if no scheduled air

service has been operated during a period of 12 months on the route subject to such

obligation.

12. In case of sudden interruption of service by the Community air carrier selected in

accordance with Article 17, the Member State concerned may, in case of emergency,

select by mutual agreement a different Community air carrier to operate the public

service obligation for a period up to seven months, not renewable, under the following

conditions:

(a) any compensation paid by the Member State shall be made in compliance with

Article 17(8);

(b) the selection shall be made among Community air carriers in compliance with the

principles of transparency and nondiscrimination;

(c) a new call for tender shall be launched.

The Commission and the Member State(s) concerned shall be informed without delay of

the emergency procedure and of its reasons. At the request of a Member State, or on its

own initiative, the Commission may, in accordance with the procedure referred to in

Article 25(2) suspend the procedure if it considers after its assessment that it does not

meet the requirements of this paragraph or is otherwise contrary to Community law.

Article 17

Public tender procedure for public service obligation

1. The public tender required in Article 16(10) shall be conducted according to the

procedure set out in paragraphs 2 to 10 of this Article.

2. The Member State concerned shall communicate the entire text of the invitation to

tender to the Commission except where, in accordance with Article 16(5), it has made the

public service obligation known through the publication of a notice in its national official

journal. In such case the tender shall also be published in the national official journal.

3. The invitation to tender and the subsequent contract shall cover, inter alia, the

following points:

(a) the standards required by the public service obligation;

(b) rules concerning amendment and termination of the contract, in particular to take

account of unforeseeable changes;

(c) the period of validity of the contract;

(d) penalties in the event of failure to comply with the contract;

(e) objective and transparent parameters on the basis of which compensation, if any,

for the discharging of the public service obligations shall be calculated.

47

4. The Commission shall make the invitation to tender known through an information

notice published in the Official Journal of the European Union. The deadline for

submission of tenders shall not be earlier than two months after the day of publication of

such an information notice. In case the tender concerns a route to which the access had

already been limited to one carrier in accordance with Article 16(9), the invitation to

tender will be published at least six months before the start of the new concession in

order to assess the continued necessity of the restricted access.

5. The information notice shall provide the following information:

(a) Member State(s) concerned;

(b) air route concerned;

(c) period of validity of the contract;

(d) complete address where the text of the invitation to tender and any relevant

information and/or documentation related to the public tender and the public

service obligation shall be made available by the Member State concerned;

(e) deadline for submission of tenders.

6. The Member State(s) concerned shall communicate without delay and free of charge

any relevant information and documents requested by a party interested in the public

tender.

7. The selection among the submissions shall be made as soon as possible taking into

consideration the adequacy of the service, including the prices and conditions which can

be quoted to users, and the cost of the compensation required from the Member State(s)

concerned, if any.

8. The Member State concerned may compensate an air carrier, which has been selected

under paragraph 7, for adhering to the standards required by a public service obligation

imposed under Article 16. Such compensation may not exceed the amount required to

cover the net costs incurred in discharging each public service obligation, taking account

of revenue relating thereto kept by the air carrier and a reasonable profit.

9. The Commission shall be informed in writing and without delay of the results of the

public tender and of the selection by the Member State including the following

information:

(a) numbers, names and corporate information of tenderers;

(b) operational elements contained in the offers;

(c) compensation requested in the offers;

(d) name of the selected tenderer.

10. At a request of a Member State or on its own initiative, the Commission may request

Member States to communicate, within one month, all relevant documents relating to the

selection of an air carrier for the operation of a public service obligation. In case the

requested documents are not communicated within the deadline, the Commission may

decide to suspend the invitation to tender in accordance with the procedure referred to in

Article 25(2).

48

Appendix 5

EU Commission Decision: State aid SA. 39757 (2015N) – Ireland – Regional Airports

Programme 2015 – 2019.

49

50

Department of Transport, Tourism & Sport

Airports Division July 2015