In 1994, Portugal informed the Commission of its plan to grant aid to the State airline Transportes Aéreos Portugueses SA (TAP) as part of a restructuring programme. The Commission adopted a decision in 1994, holding that the aid granted to TAP was compatible with the common market provided Portugal complied with a number of conditions concerning public service obligations as from April 1996.

That obligation is mentioned in the 1992 regulation on access for Community air carriers to intra- Community air routes. According to that regulation, a Member State may impose public service obligations in respect of peripheral or thinly-served destinations in its territory. In such cases, the Member State may limit access to a single carrier for a maximum period of three years, following an offer by public tender.

In 1995, Portugal issued an invitation to tender with a view to choosing a carrier wishing to operate certain routes between continental Portugal and the Azores and Madeira regions between January 1996 and December 1998. The invitation concerned a business entirely based in Portugal. Initially, only TAP was interested.

Before the expiry of the deadline laid down in the invitation to tender, Flightline, a British airline holding a British operating licence, applied for authorisation to operate most of the routes concerned.

The Portuguese Secretary of State for Transport and Communications rejected the application for authorisation on the ground that, until the end of the transitional period laid down by the regulation (from 1 January 1993 until 1 April 1997), the cabotage service had to constitute an extension of, or a preliminary to, a service from or to the carrier's Member State of registration. Flightline did not hold a licence issued by Portugal, and, since it did not operate a servicebetween the United Kingdom and Portugal, the Secretary of State took the view that the regulation prevented it from offering its services.

Challenging that argument, Flightline brought an action before the national courts. Flightline argued that aid to TAP granted by Portugal and authorised by the Commission required as its counterpart the elimination of barriers protecting TAP from competition, including removal of the limitation on cabotage rights.

The Supremo Tribunal Administrativo referred the interpretation of the 1992 regulation to the Court of Justice.

The first question concerns the imposition of the public service obligation and the possibility of limiting cabotage in Portuguese territory during the transitional period. The Court has held that applying the public service obligation does not entail waiver of the possibility of limiting internal cabotage during that transitional period. The aim of the 1992 regulation is progressively to introduce cabotage rights in order to stimulate the development of the Community air transport industry. For that reason, the regulation allows Member States, by means of a transitional period, to adapt to that liberalisation.

However, the imposition of public service obligations on regular air services to thinly-served destinations or to an airport serving a geographical region, following the issuing of an invitation to tender, is allowed even after the expiry of the transitional period. According to the Court, the provisions concerning that exception and concerning the limitation of cabotage govern different situations.

Therefore, the issuing of that invitation to tender does not have the effect of requiring the Member State in question to waive the option of limiting competition in cabotage services in its territory until 1 April 1997.

As for the obligations laid down by the Commission in the 1994 decision, do they prevent Portugal from exercising the options laid down for the transitional period? The Court considers that that decision does not require that Member State to waive such a possibility.

On the contrary, in accordance with the decision, Portugal undertook to carry out a public invitation to tender in 1995 concerning routes between continental Portugal and the regions concerned. The right to operate those services would be granted to any Community carrier provided it fulfilled the conditions laid down by the regulation.

However, the limitation on cabotage could be applied only until 1 April 1997 in relation to Madeira and until 1 July 1998 in relation to the Azores (because of specific provisions for that latter region).

Unofficial document for media use only; not binding on the Court of Justice. Available in English, French and Portuguese. For the full text of the judgment, please consult our Internet page www.curia.eu.int  at approximately 3pm today. For further information please contact Mr Reinier Van Winden: Tel: (00 352) 4303 3355; Fax: (00 352) 4303 2731