S. Ex.ª o Ministro dos Negócios Estrangeiros Dr. Paulo PORTAS Largo do Rilvas P – 1399-030 - Lisboa PORTUGAL

Commission européenne, B-1049 Bruxelles / Europese Commissie, B-1049 Brussel - Belgium. Telephone: (32-2) 299 11 11.

EUROPEAN COMMISSION

Brussels, 04.04.2012

C(2012) 2073 final cor

In the published version of this decision, some information has been omitted, pursuant to articles 24 and 25 of Council Regulation (EC) No 659/1999 of 22 March 1999 laying down detailed rules for the application of Article 93 of the EC Treaty, concerning non-disclosure of information covered by professional secrecy. The omissions are shown thus […].

PUBLIC VERSION

This document is made available for information purposes only.

Subject: SA.32022 (2012/NN) – Portugal

Alleged unlawful and incompatible aid to Embraer

Sir,

The Commission wishes to inform Portugal that, having examined the information supplied on the measures referred to above, it has decided not to raise objections to the above measures as they constitute existing aid.

1. PROCEDURE (1) On 23 September 2008, Portugal signed investment and aid granting contracts with

Embraer E Operacional Estructuras Metalicas S.A. (hereinafter “Embraer Metalicas”) and Embraer EC Estructuras em Compositos S.A. (hereinafter “Embraer Compositos”). By these contracts, Portugal granted regional aid to two investment projects by Embraer Group to support the setting-up of new installations in Evora (Portugal).

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(2) In the context of an ex officio investigation by the Commission with regard to these aid measures (case CP 55a/2009), Portugal submitted information between 18 February 2009 and 23 November 2010.

(3) In this context, Portugal amended the aid packages, reducing the aid amounts in order to bring them into line with EU state aid rules, and in particular with Commission Regulation (EC) No 1628/2006 of 24 October 2006 on the application of Articles 87 and 88 of the Treaty to national regional investment aid (Block Exemption Regulation for regional aid) (hereinafter: RAG BER)1. The amended aid contracts were signed on 23 August 2010. Portugal submitted the amended aid contracts, and complied with its obligations under Article 8(1) of the RAG BER to submit summary information for aid to large investment projects granted under block-exempted schemes and for supplementary ad hoc aid.2

(4) On 23 November 2010, the Commission informed Portugal that it had closed its ex officio investigation.

(5) On 1 December 2010, the Commission received a complaint (letters 2010/115413 and 2010/115516 registered at the Commission under reference SA.32022(2010/CP)) denouncing the granting of allegedly unlawful and incompatible aid granted by Portugal in favour of Embraer Metalicas and of Embraer Compositos regarding their investment in Evora. Further information was received from the complainant on 22 February 2011 (letter 2011/018710).

(6) By letters of 21 December 2010 (2010/122822) and 23 February 2011 (2011/019127), which included non-confidential versions of the letters received from the complainant, the Commission invited Portugal to comment.

(7) By letters dated 1 and 3 March 2011 (2011/22202 and 2011/23133), Portugal submitted comments.

(8) Already on 20 January 2011, Portugal had informed (case SA.32301)3 the Commission on aid granted in December 2010 to Embraer Compositos under an aid scheme exempted from notification under Commission Regulation (EC) No 800/2008 of 6 August 2008 declaring certain categories of aid compatible with the common market in application of Articles 87 and 88 of the Treaty (General block exemption Regulation) (hereinafter: GBER)4 for an extension (phase II) of the composite parts investment project. This additional aid had not been covered by the earlier ex officio investigation, and is also outside the scope of the complaint, but is covered by the present decision as Portugal declared that the new investment project constitutes a single investment project in the meaning of point 60 of the RAG with the initial Embraer Compositos (Compositos phase I) project.

(9) By letter dated 12 September 2011 (letter 2011/097095), Portugal replied to a Commission request to comment on the possibility that the new Embraer Compositos investment (phase II) could constitute a single investment project together with the investment in Embraer Metalicas.

1 OJ L 302, 1.11.2006, p. 29. 2 Summary information published on http://ec.europa.eu/competition/state_aid/register (case SA.32005) and

in OJ C 110, 8.4.2011 (case SA.32003 Embraer Metalicas) and OJ C 59, 24.2.2011 (case SA.32004 Embraer Compositos).

3 Summary information published on http://ec.europa.eu/competition/state_aid/register. 4 OJ L 214, 9.8.2008, p. 3.

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(10) By letters dated 26 October 2011, 20 December 2011, 19 January 2012, 1 February 2012 and 10 February 2012, Portugal submitted additional clarifications on the aid measures to Embraer.

2. DESCRIPTION OF THE AID

2.1. Objective (11) The objective of the aid to the Embraer investments is to support the regional

development of Evora, Alentejo region, which is an assisted area in virtue of article 107(3)(a) TFEU under the regional state aid map5 in force at the time of granting of the measures, with a standard aid ceiling of 40 %. Portugal considers these investments to form the first steps in the creation of a cluster in the aeronautic field, which is a strategic sector for Portugal.

2.2. The aid beneficiaries (12) Embraer S.A. is a Brazilian aerospace conglomerate that produces commercial,

military, and executive aircraft and provides aeronautical services. Headquartered in São José dos Campos (Brazil), Embraer is the world's third-largest commercial aircraft company, employing around 17 000 people in 2010. The company has operating units in several places around the world.

(13) Embraer established its first presence in Portugal through its participation in OGMA (Indústria Aeronáutica de Portugal S.A.), a major aircraft maintenance company located in Alverca. Established in 1918, OGMA was fully controlled by the Portuguese government. In 2005, a privatization process was carried out and OGMA became part of Embraer's overall structure (Airholding SGPS, a consortium made of Embraer and EADS, acquired a 65% share of OGMA's capital).

(14) In 2006, OGMA inaugurated the Executive Jets Center, created to improve the maintenance services of the Embraer Legacy 600 and future business jets developed by Embraer. On 8 August 2006, Embraer and the Portuguese Government signed an agreement setting Embraer to assess cooperation with OGMA towards the development of a capacity to design and manufacture aerostructures for the world-wide market. In 2008, Embraer announced the deployment of two new plants in Portugal, both based in the Aeronautical Industry Park near the municipal airport of Évora: Embraer Metalicas and Embraer Compositos were both incorporated on 27 June 2008, and are both subsidiaries of Embraer Portugal SGPS S.A. (a Portuguese holding company of Embraer Group).

2.3. The investment projects

(15) The Embraer Metalicas and the Embraer Compositos projects are located on adjacent land parcels in Evora, separated by a road.

(16) The Embraer Metalicas project concerns the setting-up of a plant to manufacture metallic structures for the aeronautic sector. Total costs for this investment amount to EUR 117 143 105 for machinery, buildings and land. Out of this amount, EUR 99 743 348 is eligible for regional aid. Works on this project started on 1 October 2008 and are planned to be completed by 31 December 2014.

5 Commission decision C(2007)283fin of 7 February 2007, case N 727/2006 (OJ C 68, 24.3.2007, p. 26).

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(17) The Embraer Compositos phase I project concerns the setting-up of a plant for the production of composite structures for the aeronautic sector. Total costs for this investment amount to EUR 52 281 430 for machines, buildings and land. Out of this amount, EUR 38 404 217 is eligible for regional aid. Works on this project also started on 1 October 2008 and are planned to be completed by 31 December 2014.

(18) The Embraer Compositos phase II project concerns the extension of the plant for the production of composite structures. This additional investment will increase the capacity of the Embraer Compositos plant. It includes a […]* for composite materials. This investment will also enlarge the structures assembly part of the plant. Total costs for the Embraer Compositos phase II investment amount to EUR 38 883 776, all eligible for regional aid. Works on this project started on 1 June 2011 and are planned to be completed by 31 March 2015.

(19) According to Portugal, the Embraer Compositos phase II project constitutes a single investment project within the meaning of point 60 of the Regional aid Guidelines6 with the Embraer Compositos phase I project.

(20) The investments for Embraer Metalicas, Embraer Compositos phase I and Embraer Compositos phase II are expected to create up to 230, 129 and 26 new jobs respectively (and approximately 1320, 387 and 78 indirect jobs).

2.4. The aid measures (as amended) (21) Portugal informed that the above investment projects for Embraer Metalicas and

Embraer Compositos were supported by aid packages which include four types of measures, namely: a partially refundable loan, tax advantages, aid in the form of land sale below market price, and de minimis aid.

2.4.1. Partially refundable loan (22) Partially refundable loans have been granted on the basis of the scheme "Financial

Incentive scheme SI Inovaçao”, a block-exempted scheme according to the RAG BER. Portugal submitted a summary information sheet of this scheme in conformity with Article 8 of the RAG BER. This information was registered at the Commission under the reference XR 60/20087.

(23) The aid was awarded by two Decisions of the Council of Ministers, dated 11 September 2008, which were later amended by Decisions dated 19 August 2010. The latter Decisions had the sole effect to insert the amendments (reduction of aid amounts) made to some of the investment contract clauses.

(24) Portugal granted a partially refundable loan of EUR […] to Embraer Metalicas, representing an aid amount of EUR 28 941 138 in gross grant equivalent (GGE).8

(25) For the Embraer Compositos phase I project, Portugal granted a partially refundable loan of EUR […], representing an aid amount of EUR 13 920 260 GGE.9

* Covered by the obligation of professional secrecy. 6 Guidelines on national regional aid for 2007-2013 (OJ C 54, 4.3.2006, p. 13). 7 The summary information was published in OJ C 293, 15.11.2008. 8 For the purpose of this decision, all aid amounts and eligible costs were discounted to the year 2008 (year of

first granting of aid to both Embraer Metalicas and Embraer Compositos), using the discount rate of 5.59% applicable for August 2008. The refundable loan amounts to EUR […]. Out of this amount, EUR […] is convertible in non-refundable and EUR […] in refundable. The aid element related to the refundable part amounts to EUR […] in GGE. The GGE of the non-refundable part amounts to EUR […]. Therefore, the aid equivalent for this measure amounts to EUR 28 941 138.

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(26) Portugal formalised the granting of the above aid by signing a contract with each beneficiary on 23 September 2008.

(27) For the Embraer Compositos phase II project, a partially refundable loan was granted on 23 December 2010 on the basis of the scheme "SI Inovaçao”, a block-exempted scheme according to the GBER. Portugal submitted a summary of this scheme in conformity with Article 9 of the GBER. This information was registered at the Commission under the reference X 404/200910. The partially refundable loan amounts to EUR […] (nominal value) representing an amount of EUR 7 153 608 GGE11.

2.4.2. Tax advantages (28) Supplementary ad hoc fiscal aid was granted to the two beneficiaries in application of

Article 1(1) of the RAG BER by municipal resolution of the Municipality of Evora of 21 August 2008 and by decisions of the Council of Ministers of 11 September 2008, and reflected in the relevant investment and aid contracts. This ad hoc fiscal aid includes:

− municipal property transfer tax exemption as regards the land transfers related to the projects (IMT, imposto municipal sobre as transmissões onerosas de imóveis),

− municipal property tax exemption until 2017 (IMI, imposto municipal sobre imoveís),

− stamp duty exemption for all acts or contracts required to complete the project including for the issuance of the guarantee or credit insurance,

− corporate tax credit (IRC imposto sobre o rendimento das pessoas colectivas).

(29) Portugal confirmed that a control mechanism ensures that the cumulation of the four types of fiscal aid can never exceed the maximum aid amounts as defined in the relevant investment and aid contracts. Therefore, altogether, Embraer Metalicas can receive fiscal aid up to EUR […] (EUR […] GGE). Embraer Compositos can receive fiscal aid up to EUR […] (EUR […] GGE) for its phase I investment project.

2.4.3. Land sale below market price (30) Supplementary ad hoc aid in the form of land sale below market price was granted to

the beneficiaries by the Municipality of Evora, in application of Article 1(1) of the RAG BER. The buying option contracts between the Municipality of Evora and the two beneficiaries were signed on 28 July 2008, and the sale contracts were signed in 2009.

(31) In the case of Embraer Metalicas, the aid amounted to EUR […] (EUR […] GGE), and in the case of Embraer Compositos, the aid amounted to EUR […] (EUR […] GGE). The aid corresponds to the difference between the price the Municipality of Evora paid for the land and the price paid by the Embraer companies for it.

9 The refundable loan amounts to EUR […]. Out of this amount, EUR […] is convertible in non-refundable

and EUR […] in refundable. The aid element related to the refundable part amounts to EUR […] in GGE. The GGE of the non-refundable part amounts to EUR […]. Therefore, the aid equivalent for this measure amounts to EUR 13 920 260.

10 The summary information was published in OJ C 139, 28.5.2010. 11 The refundable loan amounts to EUR […]. Out of this amount, EUR […] is convertible in non-refundable

and EUR […] in refundable. The aid element related to the refundable part amounts to EUR […] in GGE. The GGE of the non-refundable part amounts to EUR […]. Therefore, the aid equivalent for this measure amounts to EUR 7 153 608. Values discounted at the moment of the granting of the aid, in December 2010.

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2.4.4. De minimis aid (32) Portugal also granted de minimis aid to the Embraer Metalicas and the Embraer

Compositos phase I projects (EUR […] and EUR […] respectively – in GGE).

2.4.5. Total aid granted to Embraer Metalicas and to Embraer Compositos (33) The table below gives an overview of the aid in GGE granted for each investment

project (total aid: EUR 29 672 189 for Embraer Metalicas, and EUR 21 257 695 for Embraer Compositos phase I+II12).

(34) Portugal has committed to ensure that both the maximum aid amount as well as the corresponding maximum aid intensity in GGE will not be exceeded, even if the indicated total eligible costs of the investment projects would turn out to be higher or lower than foreseen.

3. THE COMPLAINT

3.1. The complainant (35) The complainant is Bombardier Inc. and its wholly-owned subsidiary Short Brothers

PLC (hereinafter referred to as "Bombardier"), which is a direct competitor of Embraer Group.

3.2. The complaint (36) The complainant argues that the aid granted for the investments in Evora distorts

competition in the EU/EEA market for two markets (aerostructures and business jets), as the aid will enable Embraer, being already the world´s fourth largest manufacturer of civil aircraft, to capture a significant share of these markets.

(37) The complainant considers that Portugal has granted unlawful regional aid to Embraer Metalicas and Embraer Compositos as regards the above mentioned investment projects. Moreover, the complainant alleges that the rules laid down in point 60 of the RAG regarding single investment projects, which should have been applied, have not been respected: according to the complainant, the two projects have been artificially split and should be seen as a single investment project. As a consequence, the amount of aid would exceed by far the maximum allowable.

12 Values of the two projects Embraer Compositos I and II considered as a single investment project

(discounted to August 2008, moment of the granting of the first aid, using the discount rate of 5.59% applicable in August 2008).

Amounts in EUR (GGE) Embraer Metalicas Embraer Compositos phase I+II

Partially refundable loan 28 941 138 20 336 484

Direct grant (land) […] […]

Tax advantages […] […]

De minimis aid […] […]

Total aid granted 29 672 189 21 257 695

Total eligible costs 99 743 348 73 279 911

Applied aid intensity (%) 29.75 % 29.01 %

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(38) The complainant introduces a series of additional allegations. In particular, that further support is also awarded through the sale of land to Embraer below market price and fiscal exemptions granted by the Municipality of Evora.

3.3. Single investment project (39) The complainant alleges that the two Embraer investment projects in Evora (Embraer

Metalicas and Embraer Compositos I) constitute a single investment project within the meaning of the RAG (point 60 and footnote 55)13. According to the complainant, in applying the definition of single investment project, the Commission must assess the geographic proximity and the technical, functional and strategic links between the projects.

(40) The complainant states that the "three year rule" is satisfied because Embraer made the investments in Evora simultaneously, and the construction works started on the same date (November 2010) with a same planned completion date (end 2011).

3.3.1. Geographic proximity (41) The complainant further notes that both projects are located in Evora, on adjacent land

plots separated only by a road. The Municipality of Evora transferred both plots to the relevant Embraer subsidiary in June 2009.

3.3.2. Strategic links (42) The complainant considers that there are strong strategic links between the two

projects in Evora, firstly because Embraer established specifically for this purpose a new corporate group of subsidiary companies (Embraer Metalicas, Embraer Compositos, Embraer SGPS Holding), distinct from its existing investment (OGMA) in Portugal. The three companies were incorporated on the same date, held their shareholder meetings on the same day, have the same registered office and have common management (common directors, all of whom are senior executives of Embraer; in particular one person who is director of each of the three new Portuguese subsidiaries and responsible for the day-to-day management).

(43) The complainant claims that following an initial agreement entered into in 2006, Embraer applied for and negotiated the terms of the aid provided by the relevant Portuguese authorities as a single "package deal".

(44) Embraer refers in its 2008 Annual Report to the Evora site as one "unit" with two plants for the manufacturing and assembly of components. The complainant deducts from public information that the Evora investment is an integral part of Embraer's overall corporate strategy and involves developing a single manufacturing "centre of

13 RAG, point 60: "In order to prevent that a large investment project being artificially divided into sub-

projects in order to escape the provisions of these guidelines, a large investment project will be considered to be a single investment project when the initial investment is undertaken in a period of three years by one or more companies and consists of fixed assets combined in an economically indivisible way." RAG, footnote 55: "To assess whether an initial investment is economically indivisible, the Commission will take into account the technical, functional and strategic links and the immediate geographical proximity. The economic indivisibility will be assessed independently from ownership. This implies that to establish whether a large investment project constitutes a single investment project, the assessment should be the same irrespective of whether the project is carried out by one undertaking, by more than one undertakings sharing the investment costs or by more undertakings bearing the costs of separate investments within the same investment project (for example in the case of a joint venture)."

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excellence" in Portugal, of which the two units for manufacturing composite and metallic materials are only the initial steps.

(45) At a ceremony held in Lisbon on 26 July 2008, Embraer announced the agreement between Portugal and Embraer to build "two new industrial units dedicated to manufacturing complex airframe structures". From the presence of the presidents of Portugal and Brazil, the complainant concludes that the Evora project is of strategic importance not only to Embraer but also to the governments of both Portugal and Brazil.

3.3.3. Technical and functional links (46) The complainant states that Embraer operates a centralised production operation

across its different sites in Brazil, and that the new Evora plants will be integrated in this centralised structure. According to the complainant, the Evora plants will supply 100 % of their output to Embraer, and were set up specifically to manufacture components solely for the same new Embraer aircraft Legacy 450/500 programme (final assembly will be at Embraer's facility at Sao José dos Campos in Brazil).

(47) There is over 90 % commonality between the Legacy 450 and the Legacy 500 models. The complainant claims that the production at Evora will be highly coordinated and it is to be expected that all metallic and composite components will be shipped together from Evora to the final assembly line in Brazil. The complainant further states that the different metallic and composite components are linked to each other in fixed quantities, that the production at Evora will be tied to the lifecycle of the Legacy 450/500 models, and that no standalone end products that are marketed independently to third parties will be produced at this site.

(48) The complainant notes that Embraer applies an integrated "lean manufacturing"14 philosophy. This enables it to generate significant efficiencies from its manufacturing, inventory management and logistics operations, and is common industry practice. The complainant considers that integration of the two component manufacturing units at Evora would be consistent with best practice in the aerospace industry. The complainant finds that the plans submitted by Embraer to the Municipal Council of Evora demonstrate very clearly that the two production units will share many services: cafeteria, employees' canteen, kitchen, medical centre, administrative services (located in an administrative support building on Embraer Compositos site). The complainant takes the view that the two Evora plants will not have their own autonomous industrial and operational management structures, which would be inefficient given their small size (total of approx. 570 employees). The complainant concludes that this is a further demonstration of strong strategic as well as functional links between the two plants.

(49) The complainant compares with its own organisation of shared services and gives the example of its Querétaro site in Mexico, which is organised around centralised core functions that support the production of different types of aircraft components in different units. Centralising of the common functions allows production unit managers to focus on their areas of core competence (production, methods, logistics and quality control), hereby boosting operations performance and significantly reducing overhead costs (by eliminating core function departments such as human resources, IT, finance, etc.). The complainant adds that the manufacturing employees at its Querétaro site are

14 "Lean manufacturing" is a production practice that considers the expenditure of resources for any goal other

than the creation of value for the end customer to be wasteful, and thus a target for elimination. Lean manufacturing is a variation on the theme of efficiency based on optimizing flow. (Source: Wikipedia)

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routinely cross-trained and re-assigned across production units, and that many employees for a new composite production unit were recruited from existing metallic structures production units and/or from the site's core functions staff, and trained-up to manufacture aerostructures using composites technology. The complainant maintains that it always treated this project as a single, long-term strategic investment.

(50) The complainant claims that the Querétaro and Evora investments are similar in many regards: similar physical layout, both are adjacent to a local airport, both are manufacturing centres for aerostructures and components. Despite a broader work scope and different types of components manufactured at each production unit, Bombardier maintains very strong functional and organisational linkages between the different Querétaro production units. The complainant concludes from this that it is reasonable to expect an even deeper level of integration between the Evora projects (claiming that they are focused exclusively on the Legacy 450/500 programme), hence confirming the existence of strong technical and functional links.

(51) The complainant adds that there is a significant technology transfer from the mother company in Brazil to the companies in Portugal, reinforcing the idea that the investments in Portugal are a large, integrated project.

3.3.4. The Evora manufacturing units comprise an economically indivisible single large investment project

(52) The complainant argues that it is inconceivable that Embraer would have decided to build only one plant at Evora (either for metallic or composite components), as this would have been sub-scale and inefficient.

(53) A smaller, single product facility would also not have enabled Portugal to achieve its objective of developing an 'aerospace cluster'. The complainant states that after loosing the GECI International "Skylander" investment (which was finally implemented in France), Portugal was highly motivated to attract investments in the aeronautic sector. The complainant however suggests that Portugal would have provided substantial aid only if Embraer committed to producing both metallic and composite components at Evora.

(54) According to the complainant, the above facts and reasoning (timely and geographic proximity, strong technical, functional and strategic links), demonstrate that the two Embraer projects in Evora constitute a "single investment project".

3.4. Aid amount and individual notification requirement (55) The complainant, on the basis of publicly available information, considers the total

eligible costs (which were reduced in 2010), to be approximately EUR 119.2 million. The complainant takes the view that the aid appears to be an ad hoc aid, not granted under an existing aid scheme. The complainant further states that the aid granted for the combined Embraer Metalicas and Embraer Compositos phase I investments (approximately EUR 70 million, according to its information) exceeds the maximum allowable aid amount scaled down applying point 67 of the RAG. According to the complainant, applying the standard regional ceiling of 40 %, the maximum allowable aid would be limited to EUR 32.6 million.

(56) According to the complainant, since the aid granted to the investments in Evora exceeds the thresholds applicable under the GBER, the aid to Embraer must be

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individually notified to the Commission, and thus cannot benefit from the compatibility declaration under the GBER.

4. COMMENTS BY PORTUGAL ON THE COMPLAINT

4.1. Single investment project (57) Portugal does not deny that the Embraer investments in Evora were all undertaken

within a period of three years. Portugal however claims, based on the reasons given below, that the Embraer Metalicas investments, on the one hand, and the Embraer Compositos investments, on the other, do not form a single investment project.

4.1.1. Geographic proximity (58) Portugal underlines that although situated in immediate geographic proximity, the

production facilities are separate: they are separated by a road, have different production lines, separate fixed assets (land, buildings, production equipment, testing equipment, warehouses, and shipping docks), and separate access to the public road network.

4.1.2. Technical links (59) Portugal argues that there are no technical links between the Embraer Metalicas and

the Embraer Compositos projects, because:

− they are based on fundamentally distinct technologies (one for metallic and the other for composite parts and structures);

− the output products are markedly different from each other and present different technical characteristics and properties (e.g. metals can suffer from corrosion and fatigue, composites not);

− they will employ different types of production equipment, industrial processes, production cycles, raw materials, and supply chains;

− they have no common technical infrastructure or common fixed technical assets;

− they each have their own technical expertise;

− they employ separate workforces with different technical skills (no share of technicians or skilled workers);

− neither plant’s production depends on the output of the other plant;

− they cannot produce any common products (they produce separate products which are sold separately);

− the production capacity of neither plant can be substituted for the capacity of the other plant.

4.1.3. Functional links (60) Portugal explains that there are no functional links between the Embraer Metalicas and

the Embraer Compositos projects, because:

− they will maintain separate shipping and warehousing of raw materials and products (the raw materials and other inputs for Embraer Metalicas will be mostly made of aluminium, which will be stored at room temperature; Embraer

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Compositos, however, will use carbon fibre, resins, and fibre glass, which require refrigerated warehousing before production; each company will receive raw materials into and ship finished products out of its own shipping dock, with separate shipping contracts, transport in different trucks and different timing);

− the production processes and capacity usage will be independently managed by each company;

− there is no vertical relationship between the two companies, and there will be no supply relationship between the two operations;

− while it cannot be totally ruled out that they use any common technical supplier (however based on separate contracts), they will normally not have common suppliers;

− although with the exception of one high-level person, different administrators will be responsible for the operational management which will be independent (the presence of Embraer executives of the Brazilian Mother company is usual practice in Embraer).

(61) Concerning "shared services", Portugal reports that:

− there will indeed be a common canteen located on the Embraer Compositos site, but services will be offered by a third party (and each company may decide to have an in-house cafeteria or coffee/snacks accommodation);

− as for medical assistance, […];

− recruitment will be coordinated by third parties under different contracts;

− each company will source IT support independently from suppliers who answer best to their specific needs;

− although the data centre […];

− each company will have independent contracts with the contact centre, including for independent IT helpdesks;

− the Embraer centre for shared services, located in Brazil, aims to explore economies of scale across all companies and operations inside Embraer; this has nothing to do with functional links between the two Evora plants, as it would operate in the same way even if these plants were located in different cities or countries.

4.1.4. Strategic links

(62) Portugal argues that due to the different technologies involved (metals and composites) the projects may have a different life cycle. Nowadays, investment in innovation for new composites is increasing and developing in a faster way than for metallic components. It is not excluded that some metallic components will be replaced by composites (or existing composites replaced by newer composite materials). It is therefore not impossible that in the long-term only one company continues to exist.

(63) This is also why Embraer pursued two independent projects: each company will develop its own strategy in view of maximising utilisation of capacity and developing new technological capabilities. In this sense, each company is intended to work as a 'Centre of Excellence' within its own field of business. The management of each

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company will independently interface with programme managers in Brazil in order to search for business opportunities, but the parent company will be free to source from third parties.

(64) Portugal does not contest that works for both projects will run simultaneously. But both projects will become operational independently, based on the respective timings for the establishment of their technological capabilities and respective suppliers. For instance, […].

(65) Portugal explains that the two plants in Evora were not set up as a "single investment project" or single strategic decision, but are only two of the several projects envisaged by Embraer in 2006. Another output of the same internal exercise is a third investment decision, to establish a final assembly unit for small business jets (finally located in the US, Melbourne, Florida). Portugal maintains that, in its legitimate interest to establish an aerospace cluster in the country, it was always open to discuss any aid package individually, independent of the time of implementation and location.

(66) Portugal contests that the Evora projects will be exclusively dedicated to the design, production, and supply chain of the Embraer Legacy 450/500 Programme. This will indeed be the first Embraer programme to have parts and sub-assemblies manufactured in both Evora plants, but each in their respective area of expertise the companies are designed to target existing and new Embraer programmes and look for other sources of business in order to remain viable in the long term.

(67) Portugal further argues that the technological capacity of the projects would be oversized if they were limited to production for the Legacy programme only. For example, […].

(68) In addition, future products are expected to follow from at least the three business areas where Embraer operates today ([…]), and Embraer plans to develop business in the area of […]. Such diversification may open new opportunities to the Evora plants beyond the manufacturing of parts for aircraft. This will depend on the ability of each company to develop its own strategy based on its own competences.

(69) While the existing business plans only consider sales to Embraer, Portugal informs that Embraer subsidiaries compete with other players in the market for supplying the parent company, and that according to market circumstances and other opportunities, each company may decide in the future to do business with third parties.

(70) Portugal claims that Embraer never excluded the possibility of establishing Embraer Metalicas and Embraer Compositos in different locations, and provided internal Embraer documents to demonstrate this. While recognising and quantifying the synergies and an annual average in savings of EUR […] arising out of the location in a same industrial park, Portugal contests that it would be inconceivable for Embraer to locate only one company in Evora. Portugal adds that the decisions to grant aid to the Embraer projects were the result of a negotiation process between Embraer and the Portuguese authorities, in which Portugal did not set any conditions on the number of projects to be located in Portugal.

(71) Portugal rejects that a "significant" technology transfer from the mother company indicates an "integrated project". Portugal underlines that each company will coordinate with the parent company in its respective area of expertise.

(72) According to Portugal, the setting-up of two distinct subsidiaries does not suggest a single investment project but rather provides the necessary framework for one of the

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two businesses to be developed, sold, or discontinued without compromising the future of the other.

(73) Portugal refers to Commission decision in case N 245/200615,in which the Commission took the view that immediate geographic proximity does not necessarily create a single investment project when no sufficient technical, functional and strategic links exist.

(74) Moreover, Portugal refers to the fact that other companies from the sector are expected to join this cluster, as is the usual practice in the development of this type of sectoral park. The Municipality of Evora has had contact with potential investors (at least 6 companies) after the decisions to locate Embraer in the industrial park were adopted.

(75) According to Portugal, the lean manufacturing "philosophy" is not in contradiction with "no functional or strategic links". It dictates that the two plants act separately, because this is more efficient when dealing with raw material, production processes and end products which are fundamentally different.

4.2. Aid amount and individual notification requirement (76) Portugal clarified that the eligible costs, after the amendment of the aid granting

decisions, amount to EUR 99 743 348 in the case of Embraer Metalicas, and EUR 38 404 217 in the case of Embraer Compositos phase I. For the Embraer Compositos phase II project, Portugal reported eligible costs of EUR 38 883 77616, and informed that it considered this project to form a single investment project with the Embraer Compositos phase I project.

(77) As regards the ad hoc aid granted in the transfer of the land, Portugal included the aid element of the transfer in the calculation of the total aid amount and maximum applicable aid intensities.

(78) Portugal claims that the Embraer Metalicas investment does not constitute a single investment project with the Embraer Compositos projects. Portugal further states that in both cases (Embraer Metalicas and Embraer Compositos phase I + II), the total aid granted does not exceed the maximum allowable and is below the notification threshold as defined in the RAG BER and the GBER. Besides, Portugal has committed to ensure that both the maximum aid amounts and the corresponding maximum aid intensity in GGE will not be exceeded, even if the indicated total eligible costs of the investment project would turn out to be higher or lower than foreseen.

5. ASSESSMENT OF THE MEASURES

5.1. Existence of aid (79) Under Article 107(1) TFEU, any aid granted by a Member State or through State

resources in any form whatsoever which distorts or threatens to distort competition by favouring certain undertakings or the production of certain goods shall, in so far as it affects trade between Member States, be incompatible with the internal market.

15 Case N 245/2006- Poland - LG Phillips LCD (OJ C 278, 21.11.2007). 16 EUR 34 875 694 if discounted to August 2008 (for the assessment of Compositos I and II as a single

investment project).

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(80) The measures at stake confer to Embraer Metalicas and Embraer Compositos economic advantages in relation to other companies that do not receive such aid. Since they concern advantages granted to individual undertakings, the measures are selective and, given the competitive nature of the aeronautic sector on which the beneficiaries are active, threaten to distort competition. The measures are financed through State resources. Hence, these measures constitute state aid within the meaning of Article 107(1) TFEU.

5.2. Legality of the aid (81) Portugal claims that all aid was granted lawfully, within the limits of the RAG BER

and GBER, and that the individual notification thresholds laid down in these exemption regulations are not exceeded, as only Embraer Compositos I and Compositos II constitute a single investment project. Portugal also claims that the allowable aid intensity ceilings after scaling down are not exceeded.

(82) The following table presents the different types of aid and their discounted aid amount, their date of granting, and the applied legal basis per project.

Aid Element Embraer Metalicas

Embraer Compositos I

Embraer Compositos II

Applicable legal basis XR 60/2008 XR 60/2008 X 404/2009

Aid granting date (decision/contract) 11.9.2008/23.9.2008 11.9.2008/23.9.2008 23.12.2010/31.12.2010 Refundable

grant

Aid amount EUR (GGE in 2008) 28 941 138 13 920 260,24 6 416 224.55

Applicable legal basis Ad hoc aid Ad hoc aid

Aid granting date (option) 28.7.2008 28.7.2008 Land sale

Aid amount EUR (GGE) […] […]

Applicable legal basis Ad hoc aid Ad hoc aid

Aid granting date (municipal resolution/decision/contract)

21.8.2008/11.9.2008/ 23.9.2008

21.8.2008/11.9.2008/ 23.9.2008

Tax advantages

Aid amount EUR (GGE) […] […]

De minimis Aid amount EUR (GGE) […] […]

(83) In the following section, the Commission will assess whether the aid measures granted to Embraer Metalicas and Embraer Compositos constitute existing state aid within the meaning of Article 1(b)(ii) of Council Regulation No 659/1999 of 22 March 1999 laying down detailed rules for the application of Article 93 of the EC Treaty17 (now Article 108 TFEU).

(84) In a first step, for the sake of completeness, the Commission will analyse whether the aid schemes applied by Portugal comply with provisions of the relevant Block Exemption Regulation.

(85) In a second step, the Commission will verify whether the individual aid elements granted under block exempted schemes were granted within the period of validity of the scheme.

(86) In a third step, the Commission will examine whether the elements of ad hoc aid that were granted qualify as regional investment aid and can be granted on the basis of the

17 OJ L 83, 27.3.1999, p. 1.

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rules laid down in the relevant block exemption regulation regarding complementary ad hoc aid (Article 1(1) of the RAG BER and Article 13(1) of the GBER).

(87) In a fourth step, the Commission will establish whether the different projects carried out on the same location constitute a single investment project. In particular, it will assess whether (1) Embraer Metalicas and Embraer Compositos I, (2) Embraer Compositos I and Embraer Compositos II, (3) Embraer Metalicas and Embraer Compositos II, and finally Embraer Metalicas and Embraer Compositos I+II constitute a single investment project within the meaning of recital 1518 and Article 2(1)(g)19 of the RAG BER and Article 13(10)20 of the GBER.

(88) Finally, the Commission will determine whether the aid intensity ceilings for the identified single investment projects are respected.

5.3. Detailed assessment

5.3.1. Compliance with the provisions of the RAG BER

5.3.1.1. The aid scheme XR 60/2008

(89) Pursuant to Article 3(2) RAG BER, individual aid fulfilling all the conditions of that regulation, which is awarded on the basis of schemes which also fulfil all the provisions of the same regulation, shall be compatible with the internal market and shall be exempt from the notification requirement. In accordance with Article 3(3) RAG BER, ad hoc aid complementing block-exempted aid shall also be block-exempted provided that it represents less than 50 % of the total aid granted and provided that it fulfils the conditions of that regulation.

(90) In the case at hand, the aid was granted, partially, under the block-exempted scheme XR 60/2008.

(91) In conformity with Article 8 RAG BER, Portugal submitted information regarding this scheme to the Commission on 9 April 2008, through the summary information form established in annex I of the RAG BER. The national legal basis of the scheme is Portaria n° 1464/2007 of 15 November 200721. The legal basis for the aid scheme explicitly integrates the provisions of the relevant European legislation regarding state aid rules22 and explicitly refers to the RAG BER. None of its provisions contradicts the provisions of the RAG BER.

18 Recital 15 of the RAG BER (extract): "In order to prevent a large investment projects being artificially

divided into sub-projects, a large investment project should be considered to be a single investment project if the initial investment is undertaken within a period of three years by the same undertaking or undertakings and consists of fixed assets combined in an economically indivisible way. To assess whether an initial investment is economically indivisible, the Commission will take into account the technical, functional and strategic links and the immediate geographical proximity. The economic indivisibility will be assessed independently from ownership."

19 Article 2(1)(g) of the RAG BER (extract): "a large investment project will be considered to be a single investment project when the initial investment is undertaken within a period of three years by the same undertaking or undertakings and consists of fixed assets combined in an economically indivisible way;".

20 Article 13(10) of the GBER: "In order to prevent a large investment being artificially divided into sub-projects, a large investment project shall be considered to be a single investment project when the investment is undertaken within a period of three years by the same undertaking or undertakings and consists of fixed assets combined in an economically indivisible way."

21 Diário da República, 1.ª série - N.º 220 - 15 de Novembro de 2007. 22 See Article 26 of Portaria n° 1464/2007 of 15 November.

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(92) The Commission notes that the scheme fulfils the conditions of the RAG BER. Indeed, the scheme foresees the granting of the aid in the form of partially refundable loans which are deemed to be transparent (see Article 2(2) of the RAG BER). The scheme concerns initial investment projects, the applied aid intensity is fixed in conformity with the Portuguese Regional Map, the eligible expenditure is defined in line with the RAG BER (buildings, equipment, land), the required own contribution of the beneficiaries must exceed 25 % of the total investment costs, and the eligible investment has to be maintained for a minimum of five years in the region concerned.

(93) The Commission therefore concludes that the aid scheme XR 60/2008 fulfils the conditions of the RAG BER.

5.3.1.2. Aid awarded under the scheme XR 60/2008

(94) As regards the aid awarded under the scheme XR 60/2008, the Commission notes the following:

a. The Embraer Group or its subsidiaries are not firms in difficulty within the meaning of the Community guidelines on State aid for rescuing and restructuring firms in difficulty23 (see recital 21 of RAG BER).

b. In conformity with Article 3(2) RAG BER, the financial support given to Embraer Metalicas and to Embraer Compositos phase I is awarded on the basis of the block-exempted scheme XR 60/2008.

c. As required by Article 4 RAG BER, the aid is given for initial investment projects and the eligible expenditure is defined in conformity with the applicable rules. The investments have to remain in the assisted area for a minimum period of five years after their completion and the own contribution, free of aid, of the beneficiaries to the projects exceeds the required 25 % threshold. The aid awarded on the basis of the aid scheme XR 60/2008 remains below the adjusted regional ceiling applicable in these regions (see recitals (16) (17) and (18) above).

d. In conformity with Article 5(1) RAG BER, the necessity for the aid awarded on the basis of the aid scheme XR 60/2008 is ensured, since the Portuguese authorities and the beneficiaries have signed the corresponding contracts on 28 September 2008, i.e. before the start of works.

e. In conformity with Article 6 RAG BER, Article 17 of the aid contracts ensures that cumulation of the aid awarded on the basis of the aid scheme XR 60/2008 with ad hoc aid will not result in an aid intensity exceeding the ceiling fixed in Article 4(1) RAG BER.

f. In conformity with Article 8 RAG BER, Portugal has provided the information requested in the standard form.

(95) In view of the above, the Commission concludes that the aid awarded to Embraer Metalicas and to Embraer Compositos on the basis of the aid scheme XR 60/2008 fulfils all the conditions of the RAG BER.

23 OJ C 244, 1.10.2004, p. 2.

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5.3.1.3. Supplementary ad hoc aid

(96) In conformity with Article 3(3) RAG BER, the ad hoc aid which supplements the aid awarded on the basis of the scheme XR 60/2008 to each investment project represents less than 50 % of the total aid package (see recital (33) above).

(97) In conformity with Article 5 of the RAG BER, the necessity of the ad hoc aid is ensured as this aid has been awarded by the Evora Municipality24 before the start of works on the project (see recitals (23) and (26) above).

(98) In the light of the above, the Commission considers that the ad hoc aid granted to Embraer Metalicas and to Embraer Compositos fulfils the conditions of the RAG BER.

5.3.1.4. De minimis aid

(99) As regards de minimis aid, the total amount granted to Embraer Metalicas and to Embraer Compositos does not exceed the de minimis threshold of EUR 200 000. In line with Article 6 of the RAG BER, Portugal has taken into account de minimis aid granted when verifying the compliance with the provisions of Article 4 of the RAG BER.

5.3.2. Compliance with the provisions of the GBER

5.3.2.1. The aid scheme X 404/2009 (100) Pursuant to Article 3(2) GBER, individual aid granted under a scheme fulfilling all the

relevant conditions of that regulation shall be compatible with the internal market and shall be exempt from the notification requirement.

(101) In the case at hand, the aid to Embraer Compositos phase II was granted under the block-exempted scheme X 404/2009.

(102) In conformity with Article 9 GBER, Portugal submitted information regarding this scheme to the Commission on 16 December 2009, through the summary information form established in annex I of the GBER. The national legal basis of the scheme is the Decreto-Lei n° 249/2009 of 23 September 200925. The legal basis for the aid scheme explicitly integrates the provisions of the relevant European legislation regarding state aid rules26 and explicitly refers to the GBER. None of its provisions contradicts the provisions of the GBER.

(103) The Commission notes that the scheme fulfils the conditions of the GBER. Indeed, the scheme foresees the granting of the aid in the form of partially refundable loans which are deemed to be transparent (see Article 5(1) GBER). The scheme concerns initial investment projects, the applied aid intensity is fixed in conformity with the Portuguese Regional Map, the eligible expenditure is defined in line with the GBER (buildings, equipment, land), the required own contribution of the beneficiaries must exceed 25 % of the total investment costs, and the eligible investment has to be maintained for a minimum of five years in the region concerned.

(104) The Commission therefore concludes that the aid scheme fulfils the conditions of the GBER.

24 On 21 August 2008 as regards the municipal tax exemption, and on 28 July 2008 as regards the land sale. 25 Diário da República, 1.ª série - N.º 185 - 23 de Setembro de 2009. 26 See Article 2 of Decreto- Lei n° 249/2009 of 23 September.

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5.3.2.2. Aid awarded under the scheme X 404/2009

(105) As regards the aid awarded under the scheme X 404/2009, the Commission notes the following:

a. In conformity with Article 8 GBER, the investment has an incentive effect, as it leads to a material increase in the size of the project.

b. In conformity with Article 12 GBER, the investment relates to the extension of an existing establishment.

c. In conformity with Article 13(2) GBER, the aid is granted in a region eligible for regional aid (Alentejo, an assisted area covered by Article 107(3)(a) TFEU).

d. The Embraer Group or its subsidiaries are not undertakings in difficulty, as required by Article 1(6)(c ) GBER.

e. In conformity with Article 3(2) GBER, the financial support given to Embraer Compositos phase II is awarded on the basis of the block-exempted scheme X 404/2009.

f. The aid is given for an initial investment in accordance with Article 12(1)(a) GBER and the eligible expenditure is defined in conformity with the applicable rules laid down in this Article. In conformity with Article 13 GBER, the investment has to remain in the assisted area for a minimum period of five years after its completion and the own contribution, free of aid, of the beneficiary to the project exceeds the required 25 % threshold. The aid awarded on the basis of the aid scheme X 404/2009 combined with the aid package which had been awarded on the basis of the scheme XR 60/2008 respects the adjusted regional aid ceiling applicable for the large investment project in question.

g. The incentive effect of the aid is ensured in conformity with Article 8 GBER. The application for aid under the scheme X 404/2009 was submitted by Embraer Compositos to Portugal well before 1 June 2011, when works on phase II of the project started (see recital 27).

h. In conformity with Article 7 of the GBER, Portugal ensured that cumulation of the aid granted under X 404/2009 with the aid package which had been granted for Embraer Compositos phase I did not result in an aid intensity exceeding the ceiling fixed in Article 13 GBER.

i. In conformity with Article 9 GBER, Portugal has provided the required information in the standard form.

(106) In view of the above, the Commission concludes that the aid awarded to Embraer Compositos on the basis of the aid scheme X 404/2009 fulfils all the conditions of the GBER.

5.3.3. Single investment project (107) The provisions regarding the notion of 'single investment project' in the RAG (point

60 and footnote 55 of the RAG, see footnote 14 of this decision), RAG BER (Art. 2(1)(g) and recital (15), see footnotes 19 and 20 of this decision), and the GBER (Art. 13(10) and recital (41), see footnote 21 of this decision) intend to avoid circumvention of the notification requirement and of the scaling down mechanism for regional aid to large investment projects by artificially dividing investment projects into two or more sub-projects. It should be recalled that the absence of such an intention to circumvent

19

the rules applicable to large investment projects is not sufficient to conclude that the projects started within the same three-year period do not constitute a single investment project27. Whether a single investment project exists or not has to be established on the basis of facts and not on the basis of intentions28.

(108) According to the applicable rules, a large investment project will be considered to be a single investment project if the investments are undertaken within a period of three years and consist of fixed assets combined in an economically indivisible way. To assess whether an initial investment is economically indivisible, the Commission will take into account the technical, functional and strategic links and the immediate geographical proximity. The economic indivisibility should be assessed independently from ownership. This means that to establish whether a large investment project constitutes a single investment project, the assessment should be the same irrespective of whether the project is carried out by one undertaking, by more than one undertaking sharing the investment costs or by more undertakings bearing the costs of separate investments within the same investment project (for example in the case of a joint venture)29.

(109) The Commission's consistent practice in previous decisions has been to carry out a global assessment and to balance all the relevant criteria on a case-by-case basis30 .

5.3.3.1. Embraer Metalicas and Embraer Compositos phase I

(110) Although the projects Embraer Metalicas and Embraer Compositos phase I are both undertaken within a period of three years by the same investor group and are located in immediate geographical proximity (in the Airspace Industrial Park in Evora), the Commission considers that these projects do not constitute a single investment project for the following reasons.

(111) First of all, the Commission finds that although there are clear strategic links between the mother company of the Embraer group and each investment carried out in Evora, the strategic links between the Evora plants themselves are limited. It is undisputed that both investments are undertaken with the general objective to strengthen the Embraer group's position on the market for aircrafts by increasing its production capacity. However, each plant located in Evora competes with each other and with other competitors in offering the best solution for the manufacture of components (metallic or composite) to be used in Embraer's aircraft, and has to develop its own growth and market strategy. Moreover, on the basis of internal confidential documents of the beneficiaries, the Commission notes that each decision to locate a particular plant in Evora was taken on its own merits and independently from each other. Separate locations were seriously envisaged as an alternative by the beneficiaries because the synergies which derive from developing the two projects in the same location were quantified and considered not to be very significant. According

27 See recitals (47) to (49) of Commission decision of 18 July 2007 on case N 810/2006 AMD Dresden (OJ C

246, 20.10.2007) (corrigendum decision on 24 June 2009, OJ C 160, 14.7.2009). 28 See also section 6.4.1.of Commission decision of 17 June 2009 on case C 21/2008 (ex N 864/2006) Sovello

(OJ L 237, 9.9.2009), Even if these Commission decisions were adopted under the Multisectoral framework 2002, which contains a slightly different definition of 'single investment project', these principles remain valid.

29 See recital (15) of the RAG BER and recital (41) of the GBER. 30 See, for example, Commission decision of 17 September 2008 on case N 767/2007 Ford Craiova (OJ C 238,

17.9.2008), Commission decision of 24 March 2009 on case N 203/2008 Hamburger Spremberg (OJ C 202, 27.8.2009), or Commission decision of 20 July 2010 on case N 641/2009 Solibro (OJ C 269, 5.10.2010).

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to the beneficiaries, the savings are expected not to exceed [0-1] % of total income on average, over the next [5-15] years31.

(112) Secondly, there are no technical links between these two investment projects: these projects focus on different production technologies and completely different products with different characteristics; there are no physical links between Embraer Metalicas and Embraer Compositos through technical installations (e.g. conveyor belt, pipe system for waste treatment or feeding of raw materials...).

(113) Thirdly, the functional links between both projects are limited. Both plants have different supply chains based on different raw materials; there is no exchange of processed products between the plants. The functional links ([…]) are not related to the core activity of the plants, and one plant could not take over (part of) the production of the other. The output of both Embraer plants in Evora may potentially (but not necessarily) be used (together with input from other Embraer plants and external suppliers) in the same end product – Embraer aircraft produced in e.g. Brazil or Florida – but this does not create a functional link between the two Evora plants. Moreover, the synergies between these two investment projects, which have been quantified by Embraer group and verified by the Commission, are not significant in comparison with the total investment cost.

(114) Taking into account that there are no technical links, that there are only limited functional links and relatively limited strategic links between these two projects, the Commission concludes that the investment in Embraer Metalicas, on the one hand, and the investment in Embraer Compositos I, on the other hand, do not constitute a single investment project within the meaning of that notion as used in the RAG, RAG BER or GBER. As a consequence, when calculating the maximum allowable aid intensity for these projects, the Commission will assess separately each of these two large investment projects, applying to each one the scaling down mechanism in order to verify that the regional aid ceilings referred to in Article 4(1) of the RAG BER and Article 13(3) of the GBER are not exceeded.

5.3.3.2. Embraer Compositos phase I and phase II

(115) The Commission notes that Portugal considers both projects Embraer Compositos phase I and phase II to form a single investment project. The Commission takes the same view, as the phase II project is mainly a follow-up investment extending the phase I project within the three year period and on the same site, and there are obvious technical, functional and strategic links between these projects (same raw material, same technology, same output, common staff and services, etc ).

(116) In the light of the above considerations, when calculating the maximum allowable aid intensity for the single investment project formed by these two projects, the Commission will apply the scaling down mechanism for regional aid to large investment projects in accordance with point 67 of the RAG and with the relevant regional aid map.

31 The savings were estimated to EUR […] as regards the investments costs (which amounts in total to EUR

[…]). Taking into account the impact of this investment savings on the amortization costs, the average annual savings in operating costs were estimated in total not to exceed EUR […], which should be compared with the average expected income over the next [5-15] years (i.e. […]).

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5.3.3.3. Embraer Metalicas and Embraer Compositos phase II

(117) The Commission considers that the extension investment Embraer Compositos phase II does not constitute a single investment project with the Embraer Metalicas investment. The expansion investment […]. It does not create any new functional, technical or strategic links with the Embraer Metalicas investment.

5.3.3.4. Embraer Metalicas and Embraer Compositos phase I+II

(118) In view of the above, the Commission concludes that the investment in Embraer Metalicas, on the one hand, and the investment sin Embraer Compositos (phase I and II) on the other hand, do not constitute a single investment project within the meaning of that notion as used in the RAG, RAG BER or the GBER. As a consequence, when calculating the maximum allowable aid intensity for these projects, the Commission will assess separately each of these two large investment projects, applying to each one the scaling down mechanism in order to verify that the regional aid ceilings referred to in Article 4(1) of the RAG BER and Article 13(3) of the GBER are not exceeded.

5.3.4. Aid intensity

5.3.4.1. Embraer Metalicas

(119) The standard regional aid ceilings and the scaling down of aid intensities for large investment projects pursuant to point 67 of the RAG laid down in the Portuguese regional aid map (see footnote 5) are meant to impose a standard (and for large projects, progressive) level of protection against distortion of competition and effects on trade.

(120) Applying the standard regional ceiling of 40 % GGE, a maximum scaled down aid intensity of 30.03 % GGE would be allowable for the total eligible costs amounting to EUR 99 743 348 (discounted value year 2008) for the Embraer Metalicas investment.

(121) Portugal granted aid amounting to EUR 29 672 189 GGE, corresponding to an aid intensity of 29.75 % GGE, which is below the maximum allowable.

5.3.4.2. Embraer Compositos phase I+II

(122) Applying the standard regional ceiling of 40 % GGE, a maximum scaled down aid intensity of 33.65 % GGE would be allowable for the combined eligible costs amounting to EUR 73 279 911 (discounted value year 2008) for both Embraer Compositos investments.

(123) Portugal granted aid amounting to EUR 21 257 695 GGE, corresponding to an aid intensity of 29.01 % GGE, which is below the maximum allowable.

6. CONCLUSIONS

(124) In view of the above, the Commission has concluded the following:

a. Embraer Metalicas and Embraer Compositos have received aid packages respectively for their investment projects Embraer Metalicas and Embraer Compositos phase I, which together do not constitute a single investment project within the meaning of recital 15 and Article 2(1)(g) of the RAG BER.

b. For the projects mentioned in a) above, Embraer Metalicas and Embraer Compositos each have received individual aid (as described in point 2.4.1) which

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fulfils all the conditions of the RAG BER. The aid was granted on the basis of the aid scheme XR 60/2008 which fulfils all the conditions of the RAG BER.

c. For the projects mentioned in a) above, Embraer Metalicas and Embraer Compositos each have received supplementary ad hoc aid and de minimis aid (as described in points 2.4.2, 2.4.3 and 2.4.4) which fulfils all the conditions of the RAG BER and of the cumulation rules under the de minimis Regulation.

d. The elements of these aid packages have been granted partially before (land sale options), partially after the entry into force of the GBER on 1 September 2008. The RAG BER, pursuant to Article 43 of the GBER is repealed by that date. However, by virtue of Article 9(2) of the RAG BER and recital 66 of the GBER, aid schemes block exempted under the RAG BER remain valid during the period of validity of the relevant regional aid map. The Commission considers that this continued validity applies also to ad hoc aid that supplements aid schemes that continue to be implemented under the RAG BER. In any event, all ad hoc aid granted to Embraer Metalicas and Embraer Compositos I was granted before 31 December 2008. Therefore, the transition provision of Article 44(2) of the GBER applies.

e. Embraer Compositos has received aid for its extension investment project Embraer Compositos phase II (as described in point 2.4.1 of the present decision), which constitutes a single investment project within the meaning of Article 10(13) of the GBER with the Embraer Compositos phase I project, but which does not constitute a single investment project with the Embraer Metalicas investment. This aid fulfils all the conditions of the GBER, and is granted on the basis of the aid scheme X 404/2009 which, in turn, fulfils all the relevant conditions of the GBER.

(125) As a result, the above described aid measures granted to Embraer Metalicas and to Embraer Compositos constitute existing aid within the meaning of Article 1(b)(ii) of Commission Regulation (EC) No 659/1999. Since these measures fulfil all the relevant conditions for that purpose, they are compatible with the internal market within the meaning of Article 107(3) TFUE by virtue of Article 3(2) the RAG BER and of Article 3(2) of the GBER.

7. DECISION (126) On the basis of the foregoing assessment, the Commission has decided not to raise

objections to the following aid measures as they constitute existing aid:

a. Total aid amounting to EUR 29 672 189 (GGE) granted to Embraer Metalicas to support its EUR 99 743 348 investment project in Evora in application of the aid contract signed between the beneficiary and Portugal on 23 September 2008 (amended on 23 August 2010), the land sale buying option agreement signed by the Municipality of Evora on 28 July 2008, and the tax exemption granted by the Municipality of Evora on 21 July 2008.

b. Total aid amounting to EUR 14 841 471 (GGE) granted to Embraer Compositos to support its EUR 38 404 217 Embraer Compositos phase I investment project in Evora in application of the aid contract signed between the beneficiary and Portugal on 23 September 2008 (amended on 23 August 2010), the land sale buying option agreement signed by the Municipality of Evora on 28 July 2008, and the tax exemption granted by the Municipality of Evora on 21 July 2008.

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c. Aid amounting to EUR 6 416 224 (GGE) granted to Embraer Compositos to support its EUR 38 883 776 (EUR 34 875 694 GGE) Embraer Compositos phase II investment project in Evora, awarded under the block-exempted scheme X 404/2009.

(127) The Commission reminds the Portuguese authorities that all plans to modify state aid measures have to be notified to the Commission.

If this letter contains confidential information, which should not be disclosed to third parties, please inform the Commission within fifteen working days of the date of receipt. If the Commission does not receive a reasoned request by that deadline, you will be deemed to agree to the disclosure to third parties and to the publication of the full text of the letter in the authentic language on the Internet site: http://ec.europa.eu/competition/elojade/isef/index.cfm

Your request should be sent by registered letter or fax to:

European Commission Directorate-General for Competition State Aid Greffe B-1049 Brussels Fax No: +32 2 296 12 42

Yours faithfully,

For the Commission

Joaquín ALMUNIA Vice-President