France Loses Approval for $330M Ferry Bailout

(CN) - European lawmakers "committed a manifest error of assessment" in letting France bail out a shipping company with about $330 million, the EU General Court ruled.

France-owned Compagnie generale maritime et financiere (CGMF) gave the Societe Nationale Corse-Mediterranee (SNCM) a $91 million bailout in 2002, and the European Commission approved that measure six yeas later.

The commission also approved a 2006 privatization plan for SNCM, which included a capital infusion of $246 million from the French government.

Another ferry company and SNCM's main competitor, Corsica Ferries France SAS, filed suit seeking an annulment of the commission's decision. The General Court of the European Union called the commission's decision to approve SNCM's 2006 recapitalization "a manifest error of assessment" on Tuesday.

To determine whether the recapitalization constituted state aid, regulators had to find that a private investor would have also chosen to make SNCM more attractive with a $246 million investment, rather than liquidate the company.

The European Commission told the court that the hypothetical cost of liquidating SNCM, compared with the capital infusion it approved, was "limited to the cost of additional redundancy payments, going beyond the strict legal and contractual obligations, which would have had to have been paid to employees," according to the court.

Corsica Ferries disputed that a wise private investor would have paid such compensation.

The General Court found that the recapitalization still qualifies as state aid, even if a private investor might have made the same payments.

In a statement accompanying the French decision, the Luxembourg court said that the commission "failed to define the economic activities of the French state in relation to which the economic rationale of the measures at issue must be assessed."

"Moreover, the commission did not furnish sufficient objective and verifiable evidence to show that the payment of additional redundancy benefits is a sufficiently established practice among private business persons or that that conduct of the French state, in the present case, was motivated by a reasonable likelihood of drawing indirect material profit, even in the long term (by preventing, for example, a worsening of the social climate within public undertakings)," according to the court.

The recapitalization plan, which included $10.5 million from state-owned CGMF and $46 million paid out to individuals, also constituted state aid, the court found.

"The mere fact that a measure pursues a social aim is not sufficient for it to avoid being classified as state aid," it said in a statement. "In so far as that aid was likely to create an economic advantage for SNCM, it constituted state aid."

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