(1)

By letter of 23 May 2001 (No D/288742), the Commission informed France of its decision to authorise restructuring aid for Sernam (hereinafter referred to as the ‘decision of 23 May 2001’ or the ‘Sernam 1 decision’).

(2)

By letter of 17 June 2002 (registered on the same day under No A/60693), the French authorities submitted a first annual report on the restructuring of Sernam and a new memorandum of understanding between SNCF and Geodis, indicating that the aid approved on 23 May 2001 had been implemented under conditions different from those on the basis of which the Commission had taken its decision of 23 May 2001. By letter of 30 October 2002 (registered on 31 October 2002 under No A/69194), France transmitted additional information. On 27 November 2002 the Commission sent a letter to France to which it replied by letter of 30 January 2003 (registered on 31 January 2003 under No A/12246). Meetings between the French authorities and the Commission took place on 29 August 2002, 25 February 2003 and 22 March 2004. Additional information was supplied by the French authorities at the meeting of 22 March 2004 and by letter of 14 April 2004.

(3)

The Commission commissioned an independent expert to carry out market research, the report of which was submitted in early June 2004.

(4)

Moreover, by letter of 8 July 2002 (registered on 15 July 2002 under No A/62493), the Commission received a complaint (submitted jointly by several complainants, hereinafter referred to as ‘the complainants’) concerning the Sernam dossier. Meetings between the complainants and the Commission took place on 3 September 2002 and 29 January 2003. By letter of 13 December 2002 (registered on 17 December 2002 under No A/72603), the complainants served notice on the Commission for the first time to take action, indicating that they would otherwise institute proceedings for failure to act, a notice which they repeated by letter of 24 April 2003. (4) Subsequently, they sent the Commission additional letters, including one dated 4 February 2003 (5) and two dated 28 February 2003, one of which was sent on 4 March 2003, (6) and a letter of 10 March 2003 (7) and one of 15 September 2003. (8) The complainants served notice on the Commission for the second time urging it to take steps, indicating again that they would otherwise bring an action for failure to act, by letters dated 13 and 18 February 2004, (9) and transmitted further letters on 19 May, (10) 10 June and 9 September. The Commission’s replies included letters of 7 February 2003 (response to the first notice), 25 February, 17, 20 and 21 March and 8 May 2003 (response to the repeat of the first notice) and 19 March 2004 (response to the second notice).

(5)

By letter of 30 April 2003, the Commission informed France of its decision to initiate the procedure provided for in Article 88(2) of the EC Treaty in respect of this aid (Decision C 32/03).

(6)

The Commission decision to initiate the procedure was published in the Official Journal of the European Union. (11) The Commission called on interested parties to submit their observations on the aid in question.

(7)

The Commission received observations on this matter from interested parties which it forwarded to France by letter of 26 September 2003 asking it to comment, which it did by letter of 26 November 2003.

(8)

As indicated in the decision of 23 May 2001, Sernam was set up in 1970 as part of the SNCF bringing together all activities involved in parcel services. A reorganisation in 1993 led to the creation of Sernam Domaine and its subsidiary Sernam Transport SA. Sernam Domaine remained part of SNCF whereas Sernam Transport SA was set up as a 100% subsidiary of SNCF which in turn had 24 subsidiaries (12) through which it carries out its road transport operations.

(9)

The group established in 1993 consisting of Sernam Transport SA and its subsidiaries (hereinafter referred to as the ‘Sernam Transport group’) has always more or less been in financial equilibrium. However, the business results of Sernam Domaine steadily deteriorated from 1992 but it was only in 1996, partly because of considerable industrial unrest within SNCF, that a recovery plan could be drawn up. Nevertheless, the SNCF has studied ways and means of improving Sernam Domaine’s situation as its performance continued to get worse.

(10)

On 1 February 2000 Sernam Domaine was transformed into a 100% subsidiary of SNCF and a new limited partnership (hereinafter referred to as ‘SCS Sernam’) was then created by SNCF with separate legal personality. It comprises the fixed assets of the former Sernam Domaine and the financial assets of Sernam Transport SA. Consequently, SNCF’s subsidiary Sernam Transport SA has become a 100% subsidiary of SCS Sernam while nevertheless remaining a separate company and the holding company of its 24 subsidiaries.

(11)

The present decision concerns the restructuring of SCS Sernam (even though it was transformed into a Société Anonyme following the memorandum of understanding signed between SNCF and Geodis on 21 December 2001 and though 15% of SCS Sernam sold to Geodis and Cogip respectively was taken over by SNCF).

(12)

Since its inception in 1970, Sernam has mainly been engaged in parcel services (less-than-truckload transport) on the groupage market which basically includes traditional mail services (delivery normally between 24 and 48 hours) and express mail services (delivery normally in less than 24 hours) and, to a lesser extent, on the charter market (point-to-point full truckload transport) and in logistics (warehousing, storage, order picking, assembly).

(13)

As indicated in the Sernam 1 decision, ‘groupage may generally be defined as an activity which consists of collecting the goods from the sending customer, concentrating the goods at a sending agency, carrying them to the destination agency and finally delivering them to the destination customers. Groupage operations are necessary to optimise the use of means of transport; the groupage company ensures the transport of grouped parcels coming from various shippers and intended for several recipients. While it is related to the goods transport market, groupage constitutes a market by itself, characterised by the size of the units transported (from one package to batches of several tonnes) and by the fact that it involves the transport of parcels from various shippers to several recipients’.

(14)

For all of its activities, Sernam has made use essentially of transport by road (lorries). The carriage of parcels by conventional railways was abandoned with the introduction of the new transport plan mentioned in the restructuring plan. Since then, Sernam has developed a new railway transport concept known as ‘Train Bloc Express’ (hereinafter referred to as ‘TBE’) which is used as the key element in transporting traditional and express mail flows over distances exceeding 400 km including the transport of SNCF customer baggage and the transport of newspapers between the Paris region and southern France.

(15)

In 2000 about 58% of the total turnover of €552 million was connected with groupage activities in France (basically conventional and express mail services and night-time deliveries). About 18% of turnover was connected with freight, 10.7% with logistics activities, 6.3% with newspaper and baggage transport on behalf of SNCF, 4% with various activities such as the transport of supplies and 3% with international activities.

(16)

The French authorities also indicate that ‘Sernam traffic directly served by TBE already represents € […]* million in turnover (out of € […] million groupage turnover)’. In 2003 Sernam’s real turnover was €414 million and it was expected to reach €443 million in 2006.

(17)

In 2003 road transport for Sernam accounted for €[…] million in turnover. €[…] million of this activity is directly provided by Sernam and €[…] million by a Sernam subsidiary, Sernam Transport Route, hereinafter referred to as ‘STR’. Sernam uses […] traction units (44t), […] semi-trailers (24t), […] trailers (between 3.5t and 12t) and […] light vehicles (less than 3.5t). Sernam, as a group, uses […] lorries and […] paid drivers. Of these totals, […] lorries and […] drivers come from STR. […].

(18)

The Commission has commissioned market research from an independent expert (hereinafter referred to as ‘the expert’) to determine the capacity of the market segments in which Sernam operates and its position on these markets. (13)

(19)

According to the expert, Sernam is described as the leading express mail distributor in France even though, according to the expert, this estimation depends on how the market is defined. Sernam operates in particular on the French national market. In 2000 Sernam had 7% of the groupage and parcel dispatch markets (for specific parameters (parcels)), Geodis had 12% and La Poste 25%. In terms of market shares of the French groupage market, La Poste held 28.1%, Geodis 15.3%, Deutsche Post 8.7%, TNT 7.9%, Mory 6.4%, Sernam 5.2%, followed by 13 other major companies which held between 4 and 0.8% of the market.

(20)

In terms of the number of sites in France (by groupage, standardised parcels and express), the expert lists Geodis/Calberson with 204 sites, TNT with 120, La Poste TAT and Geopost DPD with 85, Sernam with 57, Groupe Joyeau (now part of Schenker) with 53 and DPWN with 20 sites.

(21)

According to the expert, Sernam operates mainly in the following segments:

(22)

Express groupage/mail: According to the expert, the market for express parcel delivery, normally within 24 hours, has shown strong growth in Europe and in particular in France over the past 20 years but the rapid entry of transport companies in this sector has led to a drop in prices. In France, however, a distinction should be made between international express, which has expanded tremendously during the past 15 years, and national express, which has shown more modest growth. National express services are nevertheless expected to show some growth in the future, in particular as a result of the general economic recovery expected in France. According to the expert, the growth of the national express market will basically depend on the growth of electronic commerce. The expert further points out that 74% of the leading French companies already make regular use of express mail services.

(23)

Traditional groupage/mail: Traditional groupage/mail consists of the carriage, normally by road but also by rail, and usually through intermediary grouping/breakdown of shipments, of parcels of less than 3 tonnes between two destinations, normally within 24 to 48 hours.

(24)

With regard to these market segments in France, the expert notes that:

(25)

In this regard, the expert concludes that the traditional groupage/mail market is basically stagnating even though some market growth is expected, and that the carriage of parcels (specific parameters) is in decline because of the rise in electronic mail.

(26)

As indicated above, groupage constitutes a market by itself, although it is related to the goods transport market. Groupage operations are characterised by the sorting of goods and by their size (from a parcel to batches of several tonnes) as well as by the fact that it involves carrying these parcels from various shippers to several recipients. The two aspects of groupage are therefore sorting and carrying goods of a particular size. While sorting enables optimisation of the use of modes of transport, the efficient carriage of goods nevertheless remains the main objective of the whole operation.

(27)

Since giving up its traditional railway transport operations, Sernam has basically made use of grouped goods transport by road (by lorry) while at the same time working out an innovative concept, known as ‘Train Bloc Express’ or ‘TBE’, which will be explained below in the comments from France. It is appropriate, therefore, to examine the capacity of the road transport market and the rail transport market.

(28)

Road transport in Europe: The expert indicates that for Europe as a whole road transport – which is a key element of groupage/mail/parcel services – is an industry that newcomers find easy to join and which therefore suffers from permanent structural overcapacity, (14) as borne out by the fact that over the past five to seven years there has been a fall in prices.

(29)

The expert states that in any case the relevant French market is in general characterised by fierce competition and that there is a strong trend towards concentrations between companies.

(30)

Rail transport: Three sub-groups are identified:

(31)

The Commission's expert has referred in particular to a study compiled by Mercer Management Consulting: Mercer on Travel and Transport, Volume X, Number 1, Fall 2003/Winter 2004, which notes that the current competitive positioning of freight railways is frustrating but by no means hopeless. Railways offer advantages that ought to be exploited but this calls for a partial rethinking of the concept of railway freight transport.

(32)

According to these experts, the railway networks, with their high cost, can best be exploited through the use of differentiated products and pricing, together with sophisticated yield management. But for such a system to work, the sales culture must be changed, with value-based pricing taking the place of prices negotiated in accordance with bargaining power.

(33)

To this end, Mercer believes that a railway transport company should ensure that its products are standardised, value priced, and easy for customers to understand. According to Mercer, the measures to be taken should cover the following:

(34)

In the light of these expert opinions, the conclusion must be that courier services by normal trains is beset by overcapacity and has no future, courier services by classic high-speed trains are limited and courier services by TBE have some growth potential within the French national market although this segment is not particularly developed at present.

(35)

SNCF, set up as a société anonyme in 1938, became a commercial industrial public corporation (hereinafter referred to as ‘EPIC’) (16) with effect from 1 January 1983. Since the change made by the Act of 13 February 1997 setting up the public corporation Réseau Ferré de France (hereinafter referred to as ‘RFF’), SNCF (EPIC) has had the following objectives: (17)

(36)

SNCF has a board of directors composed of 18 members, namely (i) seven government representatives, (ii) five members chosen on the basis of their special competence, with at least one representing railway users, appointed by decree and (iii) six members, of whom one representing management, elected by the staff of the corporation and its subsidiaries. The chairman of the board of directors is appointed, on a proposal from the board, by a decree of the Council of Ministers. (17)

(37)

Moreover, as regards the development of groupage and express mail carried by rail (TBE concept), the French authorities note that ‘Sernam does not have a monopoly of TBE as any operator may ask Fret SNCF for an equivalent service. To date, however, none of Sernam’s competitors has explicitly asked Fret SNCF for such a service. Fret SNCF confirms that it is prepared to supply an equivalent service, on the same conditions, to any operator asking for it. Sernam has responded positively to requests for technical cooperation on TBE made by an operator who wished to evaluate its relevance and efficiency.’

(38)

By letter of 23 May 2001 (No D/288742, dossier No NN 122/00 (ex N 140/00) – France), the Commission informed France of its decision that the logistical cooperation since 1 February 2000 (lease of sites and wagons) between SNCF and SCS Sernam does not constitute State aid whereas the measures for commercial assistance to and turnaround of SCS Sernam, taken by SNCF and to be implemented between the beginning of 2001 and the end of 2004, constitute State aid compatible with the EC Treaty.

(39)

The Commission has authorised a total amount of aid of €503 million, (18) of which €448 million restructuring aid and €55 million for baggage, press and supplies contracts between SNCF and Sernam. This authorisation was based on a number of basic conditions which formed part of the dossier examined.

(40)

This aid was authorised on the basic condition that Sernam would be privatised. 60% of Sernam's capital was to be taken over by Geodis, (19) a transport and logistics company under general law quoted on the second market of the Paris Stock Exchange. 56.6% of its capital belongs to private investors (the two major shareholders are the Société Générale, through the Salvépar group, which holds 26.6% of its capital and 29.7% of voting rights, and AGF-VIE with 8.4% of the capital and 9.5% of voting rights). 43.3% of the capital and 48.6% of voting rights belong to SNCF.

(41)

In this way, Geodis should have become entirely liable for SCS Sernam's debts without limitation (20) and covered the additional costs of Sernam's restructuring up to €67 million. In turn, Sernam undertook to reduce the number of its operating sites from 107 to 72 over the period from 1999 to 2004, reduce its turnover by 18%, reduce its staff and implement restructuring with the abovementioned budget and within the prescribed timeframe, i.e. before the beginning of 2004.

(42)

Following the first annual report and following the abovementioned complaint, the Commission noted that part of the aid had been paid even though particular basic elements of the Sernam 1 decision had not been complied with. In this regard, the Commission found that there had been misuse of aid and expressed doubt especially on the following points:

Because of these doubts, it is necessary to undertake a new analysis of Sernam's restructuring plan.

(43)

When initiating procedure C 32/03, the Commission emphasised that it was necessary to ascertain that the elements which in the decision to initiate the procedure had been found to be compliant with the Sernam 1 decision would be finalised correctly (in particular to ensure efficient competition on the relevant markets on 31 January 2003 (23) – this concerns the contracts concluded between SNCF and SCS Sernam for the transport of customer baggage, the transport of newspapers and the transport of SNCF supplies). The Commission also stressed that these doubts made it necessary to carry out a new analysis of the dossier on the basis of an updated comprehensive restructuring plan that took account of the new circumstances.

(44)

Following the Commission's initiation of the procedure and in accordance with the clauses on the lapsing of validity laid down in the agreement between SNCF and Geodis on the one hand and COGIP on the other in the event that the Commission initiates the procedure or that the case is brought before the Court of Justice of the European Communities, (24) SNCF has had to take back the 15% of Sernam's shares acquired by Geodis and COGIP respectively.

(45)

According to the latest information supplied by France, the amount of aid provided by the French Republic to Sernam from the time of its conversion into subsidiaries was €489.1 million. This amount is composed of €6.7 million initial capital, €419.6 million capital transaction, €33.5 million equity loan and €29.3 million corresponding to additional costs for railwaymen. (25) This total sum corresponds to the €448 million restructuring aid of the plan approved by the Commission in May 2001, increased by €41 million to take account of the new circumstances that have occurred since the Commission's decision (in return for additional efforts, in particular in terms of site closures).

(46)

The other developments announced by France, mainly when it submitted its comments on the initiation of the procedure, such as the updating of Sernam's restructuring plan, are summed up below in the section on the comments from France.

(47)

Moreover, […] the French authorities served […] notice of their decision to put Sernam up for sale. The conditions of this sale are as follows:

(48)

To this end, the French authorities instructed a bank to look for potential buyers at European level. According to the indications of the French authorities, the deadline for this sale is […].

(49)

Accordingly, the Commission takes cognizance of the intention of the French authorities to sell the Sernam company in its entirety (including assets and liabilities).

(50)

The joint observations from various third parties, which wish to remain anonymous, are summed up below. In light of the circumstances of the case and in particular the conclusions outlined by the Commission when it initiated the procedure, these third parties have submitted the following observations.

(51)

Authorisation for the restructuring plan depended on the sale of most of the shares which SNCF held in Sernam’s capital to a private investor who would make a commitment to make his ‘own’ 20% contribution to Sernam’s restructuring costs.

(52)

Sernam should have provided a sufficient quid pro quo for this restructuring aid in the form of a reduction of its turnover (by at least 18%) and market shares to preclude all unwarranted distortion of competition. In this regard, the complainants note that the Commission has stated in the fourth paragraph of point 75 of its summary that ‘While France has proposed the closure of […] (26) additional sites of Sernam, it is not clear, on the one hand, if this countermeasure would be sufficient and, on the other hand, if it would be acceptable, given the new context of the dossier as described above’. The complainants take the view that the closure of additional sites is in no way a sufficient countermeasure, given the significant increase (by at least €108 million (€67 + 41 million)) of the amount of restructuring aid sought for Sernam and the extension of the restructuring period by at least one year.

(53)

The amount of aid authorised in 2001 should not have exceeded the minimum necessary to restore Sernam to viability. In particular, the Commission should ensure that henceforth Sernam will not have at its disposal liquid assets enabling it to continue, as is currently the case, to charge prices below market level and ‘poaching’ experienced personnel from its competitors (see paragraph 96 of the Commission’s summary).

(54)

The complainants are of the opinion that Sernam should not be authorised to restart its restructuring and continue to have access to aid and distort competition solely because it (and SNCF) does not comply with the conditions laid down in the decision of 23 May 2001.

(55)

The Commission ought to reject any new investment and development plan submitted by Sernam/SNCF and France as Sernam/SNCF and Geodis deliberately contravene the provisions of the restructuring plan authorised by the Commission's decision and because they have agreed not to participate in any Commission investigation of this initial restructuring plan in the light of the suspensory clauses of the memorandum of understanding signed by SNCF and Geodis.

(56)

On the basis of the ‘one time, last time’ principle for the grant of aid, the Commission should ensure that Sernam is not authorised to receive additional aid. Given that the measures taken by SNCF to privatise Sernam and implement the approved restructuring plan have proved insufficient to restore Sernam to viability within the prescribed period, the Commission should take the measures necessary to ensure that Sernam is put into liquidation and no longer has access to new State aid.

(57)

By letter of 19 May 2004, registered on 24 May 2004, these third parties submitted additional information showing that the number of shutdowns in the transport sector in France rose by 21.37% in the twelve months preceding March 2004 (source: INSEE). According to the third parties, the serious financial difficulties in the French road transport sector are due ‘to the economic slump but also to structural causes. Transport companies have no room for manoeuvre for lack of capital resources and company cash. Consequently, they are unable to cope when they lose a contract or when one of their customers goes bankrupt. As they often have insufficient guarantees, transport companies have more difficulty gaining confidence among bankers, shippers and also their suppliers’.

(58)

Moreover, the third parties give various examples of customers of company ‘X’ (27) to whom Sernam reportedly still only recently offered prices 10% to 30 % below those offered by company ‘X’:

(59)

Moreover, these third parties indicate that Sernam has systematically attracted personnel from company ‘X’, (28) offering 30% bonuses on the wages paid by company ‘X’.

(60)

The third parties conclude that Sernam is trying to use the aid it receives in order to gain a competitive advantage on the market at the expense of its competitors. They ask for a negative decision and immediate recovery of the aid already granted to Sernam. They also ask that the possible sale of Sernam should take place under the same conditions as those imposed on Geodis in 2001 and that it should take the form of an appropriate call for tenders.

(61)

By letters of 19 June 2003, 26 November 2003 and 14 April 2004, France submitted comments in response to the Commission’s initiation of the procedure and to the comments made by the third parties and following working meetings that had taken place.

(62)

The French authorities consider that they have provided all the information required in response to the doubts expressed by the Commission:

(63)

Moreover, as the Commission recognised in its decision to initiate the procedure, the other elements of the plan have been complied with:

(64)

Only the association of Sernam with the Geodis group has not been possible within the conditions and the deadline laid down in the memorandum of understanding signed between SNCF and Geodis on 21 April 2000.

(65)

The French authorities indicate that the memoranda of understanding between Geodis and COGIP have lapsed with the Commission’s initiation of the procedure for which it was a resolutive condition. Consequently, SNCF has taken over 15% of the shares in Sernam acquired by Geodis and COGIP respectively.

(66)

With regard to the resolutive clauses of the memoranda signed between SNCF and Geodis and between SNCF and COGIP, the French authorities believe that these were neither exorbitant nor contrary to Community law, account being taken of the risks assumed by the investor. As no Commission decision had been taken by 31 December 2000 (the date linked to the resolutive clauses), Geodis had accepted to extend the memorandum of understanding of 21 April 2000 until 30 June 2001 (this memorandum included a suspensive clause linked to the adoption by the Commission before 31 December 2000 of a final decision on compatibility). In the meantime, the Sernam 1 decision was taken on 23 May 2001. According to the French authorities, however, this decision took effect only on 14 September 2001, two months after it was published. At that point in time, the memorandum had lapsed and SNCF was obliged to renegotiate a new memorandum with Geodis. It is recalled that even though SNCF is the leading shareholder in Geodis, holding 45% of its capital, it does not control it and, moreover, cannot take part in voting on decisions by Geodis concerning Sernam. SNCF therefore had no power enabling it to oblige Geodis to apply a memorandum that had lapsed, even if the decision was applicable from the moment it was notified to the Member State. On the other hand, SNCF has done everything in its power to apply the restructuring plan.

(67)

The French authorities conclude that neither Sernam or SNCF nor the French authorities can be blamed for the lapsing of the first memorandum (on account of the absence of a final decision regarding Geodis before 30 June 2001), the length of negotiations for the second memorandum and the changes imposed by Geodis compared with the first memorandum (because of its financial difficulties).

(68)

Nevertheless, according to the French authorities the lapsing of these agreements has not prevented the further strengthening of synergies between Geodis, COGIP and Sernam. […].

(69)

The French authorities indicate that although reorganisation measures had been taken right from 2000, the application of the restructuring plan could not be started until 1 January 2003 with the arrival of Mr Charles Henri Brousseaud as the president and chief executive officer and Mr Jean Michel Tremelet as financial director of Sernam, i.e. after six months’ delay.

(70)

France indicates that this financing requirement basically corresponds to financing the losses recorded during the period needed for negotiation and to adapt the plan to the new circumstances. These new circumstances result from changes that have taken place at Geodis and in the general economic environment during the period in which the Commission has been investigating the dossier following the Sernam 1 decision.

(71)

According to the French authorities, the total cost of restructuring of €515 million indicated in the Sernam 1 decision should be financed to the tune of €448 million by SNCF and €67 million by Geodis. The high sum of €61 million in working capital requirement (hereinafter referred to as ‘WCR’) is due to the disruption at the end of 2000 connected with the mass return of railwaymen (more than 1 600 workers returned in 2000). France indicates that this sum represented the amount of an operating loan granted by Geodis to Sernam (to finance the WCR). This disruption caused delays and incidents in goods transport, leading to extensive litigation and a major extension of customer credit. At the end of 2000, the average period of recovery of claims from customers exceeded four months. The French authorities indicate that during the first half of 2002 the WCR forecast had diminished to € […]million, evaluated on the basis of an average credit of about 30 days’ turnover and financed from current bank loans. On 31 December 2002 this WCR had diminished to only € […] million financed from current bank credit lines. According to France, the measures taken by Sernam to reduce the working capital requirement thus make it possible to assert that the €67 million initially indicated, which was to be financed by Geodis, will now no longer be necessary.

(72)

The French authorities indicate that Sernam has since 1995 implemented a new strategy of increasing charges intended to restore its profitability, re-evaluating its revenue from express and traditional mail services. This policy is reflected in the company’s performance, as indicated below.

(73)

Express mail services: In order to enable a comparison between Sernam’s position and the market, Sernam has used the price per kilo as an indicator. Sernam’s average weight by dispatch is higher than the average weight by dispatch of the market ([…] kg compared with 29 kg at end June 2003). The dispatch price per kilo is digressive in relation to weight (the heavier a dispatch, the lower its price per kilo). In order to be able to make the data comparable, Sernam has made a comparison of the prices per kilo for dispatches weighing between 25 and 35 kg, i.e. the average weight of dispatches recorded on the express market.

(74)

For Sernam’s dispatches in the average market weight category, Sernam’s price is therefore € […]/kg, with an average market price of €1.07/kg. In this average weight category, the price charged by Sernam would therefore be above the market level.

(75)

Moreover, the French authorities indicate that Sernam’s price rise was […] points in the first quarter of 2003 compared with the first quarter of 2001, whereas the market rose by 13 points. At the same time, Sernam’s weight per dispatch rose quite significantly ([…] points up) compared with the market (down 7 points). Inasmuch as the price per kilo is digressive with weight, if the average weight of Sernam’s dispatches rises significantly while the market price goes down, it could be expected that the value of Sernam’s price/kg indicator would drop substantially. The fact is, however, that Sernam’s price/kg indicator is increasing and this increase is even higher than the market level. Sernam’s price per kilo increase is therefore significantly higher than that of the market. This finding is confirmed by the data available in the second quarter of 2003 excepting Sernam's night deliveries.

(76)

Traditional mail: The French authorities indicate that the same analysis has been carried out in respect of dispatches weighing between 95 and 105 kg (average dispatch weight recorded on the mail market).

(77)

(78)

For Sernam’s dispatches within the market average weight category, Sernam’s price is € […]/kg, i.e. above market level.

(79)

Moreover, the French authorities indicate that Sernam's price rise in relation to the market is […] higher over the period from the first quarter of 2001 to the first quarter of 2003 (and identical for the period from the first quarter of 2001 to the second quarter of 2003). At the same time, Sernam’s weight by dispatch has risen slightly ([…] points up) compared with the market (down 3 points). As the price per kg is digressive with weight, the rise in Sernam’s price per kilo has therefore also been more marked than that of the market. This finding is confirmed by the data available in the second quarter of 2003.

(80)

The French authorities indicate first of all is that Sernam is not legally bound to compile consolidated accounts. Consequently, Sernam cannot be reproached for failing to have published information concerning such accounts. Nevertheless, the French authorities have transmitted to the Commission Sernam’s consolidated financial statements for 2002.

(81)

The French authorities have supplied the following data showing the trend in performance since 2000 and up to the forecasts for 2006:

(82)

According to these figures, and on the basis of the restructuring measures planned and already partly implemented, Sernam should attain a neutral result in 2005 and begin to make a profit in 2006.

(83)

According to the French authorities, the table showing the classification of operators by activity, compiled by the statutory auditors on the basis of figures published in Logistique Magazine, shows that Sernam dropped from third to tenth place on the French courier market between 1998 and 2002, and from fifth to sixth place for express mail over the same period. This table has been reproduced by the French authorities:

(84)

According to the letter from the French authorities of 14 April 2004, the trend in Sernam’s turnover is as follows:

(85)

According to the information provided by France, the change in Sernam's turnover in mail services and express services between 2000 and 2003 shows that Sernam’s share of the two markets has diminished and Sernam has tended to focus more on express services.

(86)

Sernam’s turnover fell by 18% between 2000 and 2005. The part of turnover linked with traditional mail services reportedly fell by […]% and that linked with express services by […]% between 2000 and 2003. If account is taken of the corrections made by the French authorities to take market trends into account, the fall in Sernam’s turnover for mail services over the same period is even greater ([…]%), while that for express services is only slightly less, namely […]% instead of […]%.

(87)

Moreover, according to the information supplied by the French authorities, there has been a certain shift in focus in that the express/traditional mail ratio was […] in 2000 and […] in 2003. Accordingly, the share of traditional mail services in Sernam's activities has diminished to the benefit of express services. Viewed in a different way, however, if account is taken of the combined turnover for traditional and express services, traditional services constitute the major part of Sernam's activities, […] in 2000 and […] % in 2003 compared with […]% and […]%, respectively, for express services.

(88)

The number of people employed by Sernam has diminished as follows:

(89)

According to the decision of 23 May 2001, staff numbers should have been reduced to 2600 workers in 2004. In reality, however, there were still 2 995 employees in 2004 but […] in 2005, i.e. a lower number than the 2004 target.

(90)

The reduction of the number of employees thus recommended should enable important savings to be made and give Sernam the flexibility and adaptability necessary to achieve its innovative objectives.

(91)

(92)

Reorganisation of sites: Sernam’s former network was poorly adapted to making profits because there were too many sites, they were poorly located (some sites were very costly because they were situated in the city centre (Paris)) and it had sorting centres that were unsuitable in the way that they were laid out. (29) The reduction by nearly half of the number of sites and the partial relocation of sorting activities from the city to the outskirts and to sites geared to road transport connections has enabled Sernam to reduce its expenditure on rents by half and has been among the key elements for rationalisation and improved efficiency in its groupage and mail activities with a view to sustainably restoring the company’s viability.

(93)

Twenty-five of Sernam’s traditional operational sites have physical conditions incompatible with current productivity ratios in this sector. Mostly located in major cities, however, they are nevertheless indispensable for the continuity and integrity of the Sernam network. In order to restore the sites to viability, Sernam has embarked upon a policy of site modernisation where the geographic position is satisfactory (three sites concerned) and relocation where this is not the case (25 sites concerned), with operations relocated either to existing facilities renovated by Sernam or to new facilities.

(94)

This modernisation and relocation plan will make it possible to improve the network’s operating result of € […] million (in a full year, outside the Ile de France region affected by two relocations and two site modernisations). At these modern facilities, secured and optimised, Sernam (i) will reduce platform surface by 50%, (ii) reduce the number of administrative platform staff by […]%, (iii) reduce the number of disputes regarding damaged parcels, (iv) reduce the number of parcels stolen and (v) and optimise the placement of carriers on platform while reducing their immobilisation. Relocation to new facilities leads to 15% average savings on current rents.

(95)

With the assistance of Geodis, Sernam has switched its computer system to two new management software packages (‘Aanael’ and ‘Alizée 2000’) which should optimise Sernam’s future operations.

(96)

The French authorities indicate that in January 2003 Sernam merged its traditional mail and express mail transport plans into a single ‘express’ road (30) transport plan (31) based on Train Bloc Express (TBE). Thanks to this transport plan, Sernam is now properly equipped to focus purely on express services and on delivering all products with express quality service (Cliq certification, (32) which guarantees the security, reliability, timing and traceability of the packages carried) even though only about one third reportedly constitutes a genuine express mail service. (30) This quality guarantee for the customer has in particular made it possible to significantly reduce the costs linked with ongoing disputes while at the same time substantially reducing the working capital requirement. (33)

(97)

Sernam’s turnover broken down by different types of customers shows that […]% of overall turnover (corresponding to […]% of its customers) is realised with express mail customers for mixed products where Sernam does not compete with services on offer from pure courier firms which have no express services. The […]% of the turnover generated by these customers includes:

(98)

The remaining […]% of Sernam’s turnover is generated by customers who do not make use of express services.

(99)

The Train Bloc Express or ‘TBE’ concept: Train Bloc Express or TBE (34) is a shuttle train running at high speed according to a fixed time schedule and with a fixed number of wagons dedicated to the transport of traditional mail and especially express mail, which forms part of a service project that simultaneously offers Quality, Reliability, Security, Speed (160 km/h on conventional lines, 200 km/h on HST lines) and allows late collection (hence better groupage).

(100)

According to the French authorities, ‘the specific features of this offer of services are connected with the railways as a mode of transport (the TBEs are monitored with the same managerial control as HST trains even though they do not necessarily run on HST lines.) TBE forms part of a policy of sustainable development (it supplements road haulage in a market segment – express – where 12 tonne lorries now travel at speeds of 110 km/h which will be called into question in the near future in the framework of European regulations. (35) Moreover, it is fully consistent with the guidelines of the White Paper on Transport Policy for 2010 and the interoperability schemes of the national railway networks. Sernam has chosen the TBE formula to progressively change over from traditional mail to express mail’.

(101)

According to the French authorities, a TBE wagon can carry about 100 m3 of goods. The 1 500 m3 per day carried by TBE in 2002 correspond to about 30 lorries a day. In 2006, Sernam intends to transport the equivalent of about 120 lorries a day by TBE, i.e. 6000 m3, which will at the same time relieve the burden on the roads and help spare the environment.

(102)

Competitiveness of TBE: The two TBE rail shuttles which each night link Paris and Orange on the one hand and Paris, Bordeaux and Toulouse on the other hand travel at 160 km/h and even 200 km/h on high-speed lines in operation between these cities, which is particularly competitive for an express mail service.

(103)

According to the French authorities, ‘Express is currently developing on long hauls through the use of dedicated fast vehicles. In this regard, TBE is one of the alternatives enabling Sernam to free itself from the need to use road transport. Sernam’s traffic directly served by TBE today accounts for € […]million in turnover (of the total groupage turnover of € […] million). Sernam’s transport plan is technically organised around the TBE concept and it is therefore indelibly linked with this technique. (35)

(104)

According to the French authorities: “The express mail companies use light road vehicles (12 t) to carry their express freight. Over long north-south distances, Sernam uses a railway formula with higher traction costs (i.e. without distorting competition). However, this extra traction cost is offset by other optimisations of the transport plan (late collection, therefore better groupage), to which must be added advantages in terms of service (speed, reliability, security, care for the environment (35)).”

(105)

TBE already saturated: According to the French authorities, the capacity of the various TBEs operating in France is already saturated and Sernam is studying ways and means of operating other TBEs. In order to meet the growing demand for the abovementioned rail links, Sernam intends from 2005 to relocate four mixed agencies to facilities well connected to the railway network, with double the capacity for accommodating TBEs. (36) Sernam has already started negotiations to ensure that by 1 January 2005 SNCF will be able to provide it with the recommended additional capacity.

(106)

Moreover, with regard to Sernam’s multimodal system (bringing together the four operating accounts of the four multimodal hubs (Paris-Chevaleret, Bordeaux, Toulouse, Orange)), the French authorities indicate that the result of the hubs have been projected onto the years 2004 to 2010 in the framework of a gradual strategy to replace mail traffic by express traffic, in particular in long-distance services (national north-south link).

(107)

The gradual replacement of mail traffic by express traffic on rail links (encouraged by the pressure of rules and regulations which penalise lorries on long-distance journeys by imposing speed limits) will make it possible to enhance the results of the multimodal formula in successive stages during the period 2005-2010. As the multimodal hubs are configured to handle express services, this replacement will proceed at constant cost as the value transported increases.

(108)

It should be noted that in 2007 the increase in the performance of the hubs will be (slightly) slowed down following the establishment of the new hub at […] and a new rail shuttle system developed in conjunction with the SNCF whose fixed development costs will be amortised in 2007.

(109)

The operating account for multimodal services for 2003 to 2010 breaks down as follows:

(110)

The table shows a steady trend with a turnover that should more or less double and an operating result that should more or less triple over seven years.

(111)

Partners for national and international TBE: In the medium term, this system appears attractive also for other undertakings engaged in the mail services sector.

(112)

According to the French authorities, “Sernam is currently looking for other partners so as to obtain, as soon as possible, the technical cooperation necessary for its recovery. This technical cooperation will enable Sernam to use a partner’s sites, share the variable costs and have only its commercial team present on the site. The purpose of these partnerships in the medium term is to secure the continuity of the undertaking’s development (and in particular of its TBE service) and in the short term to speed up the attainment of the objectives of the business plan (e.g. technical cooperation)”.

(113)

“The contribution of a partnership is in fact necessary to optimise the TBE tool which, taking account of the requirements of express services in term of reliability, security, speed and compatibility with environmental criteria, is instrumental in ensuring Sernam's future. Moreover, it is clear that in express services railways become more of a competitive tool as traction distances lengthen (speed becoming an increasingly critical factor).”

(114)

“Under these circumstances, TBE is a tool that is bound to expand on international and transborder connections. Linking up with a partner of international stature is therefore imperative to develop the full potential of TBE. At present, the express market is a market dominated by players offering international services. Consequently, Sernam needs this linkage with partners to be able to pursue its express mail strategy”.

(115)

“The French authorities therefore confirm that it is part of their strategy to strive for Sernam to link up with a partner in its own interest”.

(116)

Moreover, for 2005 Geodis, whose express and mail service plans are exclusively focused on road transport, intends to use the TBE formula on long distances through Sernam. Other express courier services, such as TAT Express, have also informed Sernam that they are interested in this formula.

(117)

Avoiding a monopoly by Sernam: It is recalled that in France Sernam is a pioneer in the development of mail transport by rail through the TBE formula as, according to the indications provided by the French authorities, Sernam is the only undertaking developing a new railway groupage concept. Nevertheless, according to the French authorities, (37)“Sernam does not have a monopoly on TBE as any operator may ask Fret SNCF for an equivalent service. To date, however, none of Sernam’s competitors has submitted an explicit request to Fret SNCF. Fret SNCF confirms that it is prepared to provide an equivalent service on the same terms to any operator asking for it. For its part, Sernam has given a favourable response to requests for technical cooperation on TBE made by an operator who wished to evaluate its relevance and its efficiency.”

(118)

As indicated in their report of 17 June 2002, the French authorities and SNCF have complied with all the obligations to which they had committed themselves. They explained that they had opened up these contracts to competition in accordance with their commitment made by letters of 4 December 2000 and 10 April 2001. In response to paragraph 77 of the decision to initiate the procedure, the French authorities specify below the dates on which these contracts were opened up to competition in the Official Journal of the European Communities, together with their amounts.

(119)

The services provided by Sernam concerned the following:

(120)

Regarding the first four services: The Commission has been informed of the renewal of the corresponding contracts. This renewal was completely in accordance with the commitments made to the Commission to make the award of these contracts open to competition (call for tenders).

(121)

In order to meet this commitment, SNCF asked Sernam by letter of 20 June 2001 to cancel the following contracts on 31 January 2002:

(122)

The contract between Sernam and SNCF for transporting tickets was not covered by this letter because, having been signed belatedly, SNCF had directly assigned the 31 January 2002 deadline to it as recommended by the Commission.

(123)

On 20 July 2001, the following notices for the opening of the above contracts to competition were published in the Official Journal of the European Communities with the deadline for replies from candidates fixed at 31 August 2001.

(124)

Development since July 2001: Two candidates presented themselves after the notice had been published: Sernam and TCS. The SNCF Purchase Directorate did not accept TCS’s application as TCS could only to a very limited extend meet SNCF’s demand and, in particular, could not cope with large and heavy shipments. In the absence of new acceptable candidates, SNCF asked Sernam by letter of 10 October 2001 to regard its previous letter of 20 June 2001 as invalid and to extend all contracts until 31 October 2002.

(125)

By letter of 19 October 2001, Sernam confirmed its agreement to extend the contracts to 31 October 2002. By letter of 31 January 2002, the Purchase Directorate extended the contract to 31 October 2002.

(126)

Development in 2002: At the beginning of 2002, a call for applications was issued with a view to launching a call for tenders for the award of the following contracts before 31 October 2002:

(127)

This call for applications specified the characteristics of the traffic flows of goods transported, the criteria for selecting applicants, the forecast contract values updated from the data of the first nine months of 2001, and the rules for awarding contracts.

(128)

The contracts were split up into four segments, for each of which separate calls for tenders would be issued in order to take account of the specific features relating to the nature of the sector, synergies existing between contracts, and the importance for low-volume and fragmented contracts to be grouped together with industrial higher-volume traffic in order to be able to offer a competitive service.

(129)

Accordingly, each contract comprised mail, express and freight services and each candidate had to be able to propose in each case the performance of all of these services.

(130)

Under this procedure, a new periodic indicative notice (PIN) common to all the contracts were published together with a consultation announcement in the Official Journal of the European Communities of 18 February 2002 for each of the four following contracts (lots):

(131)

The deadline for responding was 27 March 2002, by which date three applications had been submitted:

(132)

TCS applied for all the lots but its turnover of less than €100 million did not qualify it to make a bid for lot 4. Moreover, as TCS was specialised in the transport of “small packages”, it could not meet the demand for the transport of heavy parcels and freight required for lots 2 and 3. Consequently, TCS could be consulted only for lot 1 for “personal files”.

(133)

Chronopost wished to be consulted only for lot 1 for “personal files”.

(134)

Sernam was the only party bidding for all the lots and the only one that complied with the conditions to take part in all four consultations.

(135)

Following the call for tenders, lot 1 was awarded on 31 July 2002 to TCS, a company outside the SNCF group, which started providing its services on 4 November 2002. The value of this contract has been evaluated at €4.5 million over a three-year period.

(136)

On 26 December 2002, the contract for transporting business documents of the Main Lines Directorate, commencing on 1 January 2003, was signed with Sernam for the sum of €2.12 million and for a two-year period with one year renewable, making a maximum of three years.

(137)

The contract for transporting tickets of the Main Lines Directorate commencing on 1 January 2003 was signed with Sernam on 26 December 2002 for the sum of €1.57 million covering a two-year period plus one year renewable, making a maximum of three years.

(138)

The transport contracts of the equipment, infrastructure, purchasing and diffuse transport directorates commencing on 1 February 2003 were signed with Sernam on 26 February 2003. Initially, the term of the contract was intended to be four years at the most but, account being taken of the lack of sufficient applicants, SNCF decided to limit the term of the contract to two years, with one year renewable, making a maximum total of three years before issuing a new call for tenders. The value of the contract was evaluated at €36.1 million under the economic conditions obtaining in June 2002.

(139)

For transporting newspapers, a consultation announcement was published in the Official Journal of the European Communities of 8 July 2002. There were two applications, one from the Beugniet company, a subsidiary of Bourgey Montreuil, and another from Sernam. As Beugniet did not have the structures required for the scope of the contract, only Sernam’s application was deemed admissible.

(140)

SNCF’s task of transporting newspapers requires a major organisational structure covering virtually the whole of French territory. It involves collecting newspapers from printers/binders, taking them to distribution centres, delivering them from there to 350 agents and providing rapid transport between the collection and distribution centres.

(141)

By opening the newspaper transport market to competition, SNCF's aim was to find a service provider with an existing collection and distribution network already in use for other transport operations and not one which did not yet have a proper structure and would therefore be obliged to create facilities practically dedicated to newspaper transport or to subcontract these activities.

(142)

Accordingly, in order to ensure that applicants did have the proper organisational or structure commensurate with the scope of the contract, SNCF took the view that their turnover ought to be substantially above the value of the contract.

The value of the contract for the transport of newspapers had been estimated at approximately €29 million a year prior to the contract notice. In order to express this requirement in terms of the structure expected from applicants, the minimum amount of turnover required from bidders in the contract notice was three times the annual value of the contract, i.e. exceeding the rounded sum of €100 million.

(143)

Beugniet, whose turnover in 2001 was €24 million, obviously did not have the required size.

(144)

Consequently, a new contract was concluded with Sernam, commencing on 1 February 2003. For the same reasons as for the supplies transport contract, the term of the contract was limited to two years with the possibility of extending it for one year, making a maximum of three years before a new call for tenders.

(145)

For a maximum of three years, the contract value calculated in the light of the volume of services provided in 2002 amounts to €95.65 million under the economic conditions obtaining in November 2002.

(146)

For transporting accompanied baggage of Main Lines customers, a consultation notice was published in the Official Journal of the European Communities of 22 May 2002. Four companies responded but only Sernam’s application was declared admissible. The other three applications were rejected:

(147)

the application by the company B2S because it had applied only for the management of the customer call centre whereas the consultation notice specified that the contract was indivisible;

(148)

the company TCS because it lacked the structures necessary to meet the requirements of the contract;

(149)

the company FIXEMER because it had not submitted the application file requested.

(150)

As only Sernam's application was found to be admissible, the new contract was concluded with effect from 1 April 2003. The term of the contract was also limited to two years, with a possible extension by one year before a new call for tenders. The value of the contract, calculated on the basis of the services provided in 2002, is €40.3 million under the economic conditions obtaining in October 2002 over a maximum period of three years. Moreover, the French authorities have informed the Commission that the consultation announcement for “lot 4” included as a selection criterion a minimum turnover which TCS did not attain. This criterion was necessary because “lot 4” concerns the transportation of large industrial objects (HST axles, sleepers, etc.), making it necessary to work with companies with a sizeable turnover and substantial means at their disposal. On the basis of the information supplied, moreover, a distinction should be made between lot 4, lots 2 and 3, and lot 1. As described above, lot 4 involves transporting large industrial objects, lots 2 and 3 transporting “heavy mail” and “freight” and lot 1 the transportation of “personal files”. As TCS was specialised in transporting small packages, it could be consulted only with regard to lot 1 “personal files”. Lot 1 was awarded to TCS. Since Sernam was therefore the only remaining company that had submitted an application and qualified for lots 2, 3 and 4, it was with Sernam that the contracts were concluded.

(151)

The French authorities have also informed the Commission that the fact that Sernam had made a bid for all the lots was in no way a condition for obtaining the contract.

(152)

Conclusion: The value of the five contracts concluded with Sernam has been estimated, on the basis of forecasts, at €175.74 million. In its decision of 23 May 2001, the Commission indicated that, over a period of eleven months in the financial year 2000, the contracts represented a value of about €55.3 million, i.e. €181 million over three years. Taking account of the fact that the contract for personal files was not awarded to Sernam (€4.5million for three years), comparison of the two amounts shows a slight drop in current monetary value despite the general price trend.

(153)

It is clear from the information and the supporting documents provided that the French authorities have met their commitment to open the supplies, newspaper and baggage contracts to competition by launching transparent and regular tendering procedures. Even though only one of these calls for tenders has led to a change in service provider, the opening-up of these contracts to competition now makes it possible to confirm that the contracts concluded between Sernam and SNCF in no way constitute aid within the meaning of Article 87 of the Treaty.

(154)

The new elements since the Sernam 1 decision are summed up below:

(155)

It is recalled that the initial restructuring cost was €515 million. (38) France intends to increase the initial restructuring aid from €448 million by €41 million, making a total of €489 million in restructuring aid.

(156)

Under Article 87 (1) of the Treaty, “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 common market.”

(157)

Even though the elements that featured in the Sernam 1 decision are still in existence, it is incumbent on the Commission to ascertain that the four criteria of Article 87(l) are effectively met for all the measures implemented or to be implemented before or after 23 May 2001. In this context, it should also take account of the development of Community law and in particular the judgment of the Court of Justice in the Stardust Marine case. (39)

(158)

According to this judgment, it is necessary to verify for every subsidy that the decision to pay it is imputable to the State in order to establish whether one of the four criteria of Article 87(1) - the “State resources” criterion - is met.

(159)

According to the description given above, it should be noted that SNCF, as an EPIC [industrial and commercial public undertaking], is a public undertaking within the meaning of Commission Directive 2000/52/EC of 26 July 2000 amending Directive 80/723/EEC of 25 June 1980 on the transparency of financial relations between Member States and public undertakings (40) as the public authorities may exercise directly or (159) indirectly a dominant influence on SNCF by virtue of their ownership of it or because of their financial participation in it or the rules which govern it.

(160)

Consequently, the €503 million and €41 million which SNCF/the French State has paid to Sernam are public resources.

(161)

Under these conditions, there is a strong presumption that SNCF is acting under State control. This presumption is based on several “indicators” highlighted by the Court in the Stardust Marine case. (41)

(162)

Under these conditions, the Commission considers that the payment at issue of public resources by SNCF to Sernam is imputable to the French State and that the State guarantees granted to SNCF constitute aid.

(163)

Application of the other criteria of Article 87(1): According to the information at the Commission’s disposal, it is noted that the other elements determining whether of not there is State aid as established in the Sernam 1 decision are still present. Accordingly, the conclusion of the Sernam 1 decision that State aid is involved in Sernam’s restructuring is still upheld, namely:

(164)

Consequently, it is found that the measures that have been or will be implemented before or after 23 May 2001 to restructure Sernam constitute State aid within the meaning of Article 87(1) of the Treaty.

(165)

As announced when the abovementioned procedure was initiated, the Commission will below analyse the new facts in order to ascertain to what extent they are or are not in conformity with the Sernam 1 decision.

(166)

Moreover, the Commission will verify to what extent the new factual situation today – compared with the Sernam 1 decision – is compatible overall with the guidelines, in particular with regard to the ’one time, last time’ principle.

(167)

Initially, the analysis will ascertain to what extent the €503 million in aid, previously authorised in 2001, has been used improperly and whether in this analysis it will be found that the additional illegal aid paid amounting to €41 million is compatible.

(168)

Secondly, the elements of the 2001 decision that have been complied with will be clarified. In light of these elements, Sernam’s eligibility for restructuring aid will be re-analysed as well as its potential for returning to viability.

(169)

This will be followed by the measures which the Commission intends to take to prevent distortion of competition and guarantee that the amount of aid approved in this decision will be kept to a minimum.

(170)

First of all, the Commission cannot accept the argument adduced by the French authorities that the lapsing of the first memorandum of understanding concluded on 21 April 2000 between SNCF and Geodis is imputable neither to Geodis nor to SNCF or the French authorities on the grounds that the Sernam 1 decision was not final before 30 June 2001, the date on which the extension of the memorandum between SNCF and Geodis expired.

(171)

The fact is that the Sernam 1 decision was notified to the French authorities on 23 May 2001, i.e. more than one month before the expiry of the extension of the memorandum between SNCF and Geodis. (45)

(172)

Article 254(3) of the Treaty provides that “ … decisions shall be notified [by the Commission] to those to whom they are addressed and shall take effect upon such notification.” Moreover, Article 242 of the Treaty provides that “actions brought before the Court of Justice shall not have suspensory effect. The Court of Justice may, however, if it considers that circumstances so require, order that application of the contested act shall be suspended”.

(173)

Accordingly, the decision notified to France on 23 May 2001 was applicable from that date, on which it took effect. France therefore had the choice of:

(174)

The fact is that France did neither of these things. Instead, it started the payment of aid, failed to apply the Sernam 1 decision (and therefore the memorandum) correctly and also failed to notify the changes of the granting conditions in violation of the Sernam 1 decision and Article 88(3) of the Treaty.

(175)

It is the Commission’s opinion that the failure to apply the Sernam 1 decision and consequently the failure to apply the memorandum of understanding between SNCF and Geodis and the unlawful grant of part of the aid which was paid under circumstances not approved by the Commission is imputable to France, to whom this decision was addressed.

(176)

It is because of the French authorities’ failure to apply the memorandum of understanding that the Sernam 1decision was not correctly implemented with regard to:

(177)

According to the Guidelines, (47)“The company must fully implement the restructuring plan that has been accepted by the Commission and must discharge any other obligations laid down in the Commission decision. The Commission will regard any failure to implement the plan or to fulfil the other obligations as misuse of the aid”.

(178)

In light of the above, the Commission concludes that there has been failure to comply with the Sernam 1 decision of 23 May 2001 with regard to the above mentioned elements and confirms that this failure constitutes misuse of the aid within the meaning of the Article 1(g) of Regulation (EC) 659/1999 and paragraph 43 of the Guidelines.

(179)

It follows that the amount of €41 million paid as additional aid by SNCF to Sernam, which is a direct consequence of this misuse (as it was paid because of the delay in linkage), should be declared incompatible with the Treaty and must be paid back in the appropriate form (with interest).

(180)

However, the Commission notes that the French authorities have met several of their objectives in accordance with the Sernam 1 decision. For instance, they have opened the contracts between SNCF and Sernam to competition.

(181)

Moreover, France has complied with the Sernam 1 decision with regard to the number of closures of Sernam’s sorting centres and their reorganisation, employee training, development in terms of staff reduction, phasing in a new transport plan, switching computer systems to those of Geodis, reducing turnover by 18% between 2000 and 2005, non-replacement by the State of the €67 million which Geodis will not provide to Sernam, changeover from Sernam’s traditional mail activities to express mail services, and in particular the changeover to an innovative service in railway transport focusing on the new combination of “range of express services” and “Train Bloc Express (TBE)” which occupies a new market segment whose full potential remains to be developed.

(182)

Moreover, in paragraph 3.2.4. of the Guidelines, the Commission specifies the conditions under which a restructuring plan may be amended.

(183)

With regard to the dossier at issue, the Commission notes the following:

(184)

Having regard to these elements, the Commission concludes that the aid investigated for the purposes of this decision meets the criteria of paragraph 3.2.4. of the abovementioned Guidelines. Consequently, the aid examined does not constitute new restructuring aid and the “one time, last time” principle does not apply.

(185)

The Commission confirms the elements set out in the Sernam 1 decision with regard to Sernam’s eligibility for restructuring aid, in respect of which it has in fact not raised any doubt in its decision to initiate the procedure (C 32/03). In paragraphs 82 to 87, the Sernam 1 decision contains considerations regarding the concept of a company in difficulty, a newly created company and 'one time, last time' aid.

(186)

Even though Sernam was eventually reconverted from an SCS (limited partnership) to a société anonyme and although Sernam’s privatisation is no longer a constituent element of the dossier, the analysis of eligibility remains unchanged. This is due, in particular, to the fact that the company's difficulties noted before 23 May 2001 necessarily remain unchanged and the objective of restructuring also remains the same.

(187)

Even though Sernam’s privatisation did not take place as envisaged in the Sernam 1 decision, Sernam has continued to carry out many elements of the initial restructuring plan while adding a range of new elements, indicating that a genuine change is in progress and raising prospects that Sernam will eventually restore its viability.

(188)

Reorganisation of sites: This reorganisation of operating sites appears to be a key element to restore the viability of a company such as Sernam. The reasons adduced by the French authorities such as the transactions referred to above with regard to the organisation of these sites, their geographic location and their excessive numbers constitute essential rationalisation towards greater efficiency and lower costs of future operations.

(189)

Staff cuts: Furthermore, the reduction of the number of staff is quite considerable, from 5050 persons in 1999 to […]in 2005, which should make it possible to make substantial savings and give Sernam the flexibility and adaptability necessary to attain its innovative objectives.

(190)

Computer system: With the assistance of Geodis, Sernam has changed over its computer system to two new management software packages (“Aanael” and “Alizée 2000”) which should optimise its future operations.

(191)

The “Xpress” range: The new express range has made it possible to classify transported products in several categories with the advantages of express services. In this way, Sernam has aligned its services in accordance with a modern operating concept as recommended by experts to ensure profitable operation on a market with growth potential.

(192)

“TBE”: Moreover, by centring its activities around the certified “express” range of services, Sernam has also been able to focus its new road transport plan on “TBE”, a highly innovative concept. The combination of “express services” and TBE has enabled Sernam to attain a current turnover of € […] million, of the total groupage turnover of € […] million. Moreover, the TBE concept, combined with the new range of express services seems to be fully consistent with the approach recommended by the abovementioned experts to make railway transport attractive. As TBE is profitable on minimum distances of 400 km and its speed is in any case faster than the speed limits on the road, it should be possible for TBE to be fully competitive with long-distance lorry transport, even if a minimum of two stops for unloading appear necessary. (48) The competitiveness of TBE should be further enhanced if the speed limit on the road is further reduced below that currently allowed for small and medium-sized lorries.

(193)

The success of TBE, which according to the French authorities is assured, shows that the concept meets a genuine need on the French national market.

(194)

This interest is another element showing that the diversification started by Sernam in order to become gradually specialized in mail transport through TBE may indeed have an economic future. The trend toward regionalisation of the French mail and express market could explain the interest kindled by TBE which by definition operates only on long distances. It should further be borne in mind that the opening-up of the railway market, initiated by the Commission, should eventually enable Sernam to gain a foothold in a new segment of the international market. In this scenario (whether of national or international scope), and taking account of the conditions imposed by the present decision, Sernam should enter into one or more partnerships with other companies in order to achieve its objectives.

(195)

Sernam’s overall viability: Sernam has been able to eliminate almost entirely, and through its own restructuring efforts, the €67 million requirement which Geodis would have had to contribute to Sernam’s restructuring. This shows that Sernam has been able independently to carry through an important part of the planned reorganisation, which will be very conducive in particular for the future management of its working capital requirement.

(196)

Moreover, the forecasts of the business plan in terms of Sernam’s performance seem plausible, given the other elements of rationalisation it has implemented, in particular as regards sites (number, location and organisation), staff, activities and WCR and having regard to the innovative concepts developed and established by Sernam (the express range and TBE) and the industrial partnerships which it intends to conclude (a condition of the present decision) to enable it to extend its railway activities (TBE), not only on the national express market but also in international express services which have grown considerably in recent years and for which the prospects remain promising.

(197)

Even in the absence of the abovementioned €41 million in additional aid, the Commission takes the view that Sernam should be able to restructure successfully by the deadline set. It has been noted that even though Sernam has only a part of the aid authorised in the Sernam 1 decision at its disposal, its performance in 2003 was already slightly better than expected (a fall of €85 million before tax in 2003 as against an expected fall of €87 million) and should break even as forecast in Sernam’s business plan around 2005-2006.

(198)

Taking the abovementioned factors into account, the Commission is of the opinion that Sernam could be restored to permanent financial viability within a reasonable period of time, as announced by the French authorities.

(199)

According to the information from the French authorities, Sernam has already substantially reduced its capacity and is planning further cuts in addition to those provided for in the Sernam 1 decision by the end of the restructuring period 2005-2006 by reducing the number of sites, staff and turnover. Moreover, Sernam is shifting its focus from groupage/traditional mail services to express mail services and also from road transport to a new rail concept, TBE. The TBE concept is being developed in a new market segment where there is no overcapacity and may provide capacity for additional growth at national and international level. The French authorities have thus met a number of criteria laid down in the Sernam 1 decision.

(200)

The Commission notes first of all that:

(201)

Next, the Commission notes the following:

(202)

The markets concerned: The Commission notes that the main markets in which Sernam operates are the French national markets of groupage, traditional mail services and express mail services. These markets nevertheless involve an essential element of road and rail transport.

(203)

Rail transport (TBE concept): As regards the development of groupage and mail transported by express rail services (TBE concept), the French authorities have confirmed to the Commission that “Sernam does not have a monopoly of TBE as any operator may ask Fret SNCF for an equivalent service. To date, however, none of Sernam’s competitors has explicitly asked Fret SNCF for such a service. Fret SNCF confirms that it is prepared to supply an equivalent service, on the same conditions, to any operator asking for it. Sernam has responded positively to requests for technical cooperation on TBE made by an operator who wished to evaluate its relevance and efficiency.”

(204)

Railway groupage as practiced by Sernam through TBE and the new express range is a new market to be developed where there is no structural overcapacity. Taking account also of the fact that the French authorities have provided the necessary assurances that Sernam cannot have a monopoly on this market, the Commission considers that Sernam need not take any compensatory measures as a quid pro quo for the aid in this market segment and may continue to develop its services within it.

(205)

Road transport: However, there is structural overcapacity in road transport throughout Europe, and therefore also in France. Moreover, the French traditional groupage market is regarded as stagnating and that for the transport of standardised packages (parcels) is in decline.

(206)

The interested parties indicate that the market is exacerbated by the closure of companies in the relevant market in France, which are more numerous than those in the previous year, and the market is also affected by strong price competition, in particular on the part of Sernam.

(207)

Groupage and express: Sernam occupies a strong position on the groupage/traditional mail market and in particular the express market in France and has a significant market share compared with a large number of other market participants.

(208)

Misuse of aid: Moreover, taking account of the misuse of aid established above and the extension of the period of the restructuring plan, the Commission takes the view that Sernam should take a specific compensatory measure by permanently withdrawing from market segments with overcapacity so as to warrant approval of part of the aid at issue.

(209)

The immediate consequence of granting State aid in markets with structural overcapacity or in decline is that a company that would have had to give up its business on account of the stated difficulties would be enabled to artificially occupy market shares for which there is a very strong demand, to the detriment of financially sound competing companies. Care should therefore be taken to avoid driving away financially sound competitors from the market to the benefit of those that appear to be unable to survive by their own efforts.

(210)

Bearing this in mind, the Commission is of the opinion that Sernam should permanently withdraw from market segments with overcapacity, in this case the market segment of groupage/traditional mail carried by road.

(211)

Even though Sernam has already started this withdrawal, the Commission believes that it is not enough and that such it should be sustained. The Commission therefore considers it necessary to impose conditions which (i) will enable Sernam to continue moving through innovative diversification towards a market segment to be developed (and therefore without overcapacity) and (ii) will make it possible to replace Sernam’s services by services of other operators (which will have the effect of freeing up Sernam’s market shares in these segments) in market segments with overcapacity or stagnation or in decline. These conditions are as follows:

(212)

The obligation to carry out this replacement will certainly be a challenge to the company. About € […] million of Sernam’s turnover comes from its road transport activities out of a total turnover of €414 million and € […] million groupage turnover. However, replacing its road transport activities should be possible without affecting its viability, mainly because of the following reasons:

(213)

Moreover, at the request of the Commission, which has emphasised that Sernam should not gain a monopoly position in express freight transport services by rail, the French authorities have confirmed in writing (49) that any other operator potentially interested in performing mail transport services by rail will be able to benefit from the same conditions as those granted to Sernam. Accordingly, the Commission considers that any risk of a de facto or de jure monopoly emerging is excluded, and only the barriers to market entry remain. (50)

(214)

Furthermore, the strategy of developing TBE is fully in line with the Commission’s transport policy as it is conducive to the road–to-rail modal shift. In this regard, the Commission considers that a company which diversifies in such a way as to make it possible to shift large volumes of goods from road to rail over long distances deserves to be given the opportunity to translate this into practice, provided that it effectively withdraws from market segments where there is overcapacity.

(215)

Consequently, the Commission considers that the following objective has been achieved:

(216)

However, the Commission takes account of the French authorities’ intention to sell off Sernam in its entirety (including assets and liabilities) by […]. In this connection, the Commission recalls that if such a transaction is effected at market price through a transparent procedure that is open to all competitors, as ascertained by an independent expert, and Sernam is sold to a party that has no legal links with SNCF, the acquiring party need not refund the sum of €41 million that has been declared incompatible. In accordance with the Court’s case law, the buyer could not be considered as having benefited from an advantage over other operators on the market.

(217)

The Commission also recalls that, if Sernam is sold in its entirety (assets and liabilities) as intended by the French authorities, the conditions of the decision (takeover of Sernam’s road activities by other companies and diversification of its activities towards rail freight) should in any case apply. On the other hand, should Sernam sell its assets en bloc, the Commission recalls that the above two conditions concerning the company’s restructuring will not apply as Sernam will no longer operate in its current legal form and will cede its market shares to the independent acquiring party (which will de facto continue its activities with Sernam's assets).

(218)

As mentioned above, the need for €41million in additional aid is basically a consequence of the failure of the French authorities to comply with the Sernam 1 decision. The payment of such an amount in additional aid is not justified as it is intended for a company which is still basically operating in market segments with structural overcapacity, stagnation and even decline. Moreover, Sernam should not have surplus liquid assets which it could allocate to activities that could cause distortion on the market and would not be connected with the restructuring process, in particular in terms of prices charged. Accordingly, it is the Commission’s view that the grant of €41 million in (218) additional aid on top of the total sum of €503 million initially notified and approved in the Sernam 1decision is not justified.

(219)

Moreover, the replacement of Geodis’s contribution to Sernam’s restructuring, as initially planned, by possible aid of €67 million may be excluded on the grounds that such a contribution will no longer be necessary. The capital injection of €67 million which Geodis was to provide through a credit line has been financed by reducing Sernam’s credit to its customers. In order to raise the €67 million, Sernam could have assigned its customer receivables through discounts or securitisations to obtain corresponding resources from a financial institution. In fact, Sernam has adopted a more fundamental approach, reducing the length of customer credit which has enabled it to raise the funds needed and thereby correspondingly reduce its working capital requirement. Such a process is in fact preferable to the external financing option as described above because it improves Sernam’s balance-sheet and provides greater security for future transactions (given the reduced duration of customers’ credit).

(220)

The Commission can therefore accept that Sernam has replaced the absence of a €67 million contribution from Geodis by an equivalent, indeed better, measure than with external funding by mobilising funds that remained blocked in customer credit for too long.

(221)

Consequently, the intensity of the aid granted to restructure Sernam in the present situation (indicated as Sernam 2 in the table below) is 81% compared with 87% intensity in Sernam 1. This takes account of the fact that Sernam has from its own resources made up the €67 million financing requirement which Geodis was to provide and should likewise make up from its own resources the additional €41 million financing requirement, which Sernam should be able to do in particular through the sale of its road activities and other means.

(222)

To the sum of €556 million (51) should be added the €34 million and €21 million compensation provided by SNCF in the form of contracts between SNCF and Sernam for the transport of baggage, newspapers and supplies during the 11 months SCS Sernam’s financial year 2000, which were regarded as compatible State aid in the Sernam 1 decision. Since France has kept its commitment to open up the contracts for the transport of supplies, newspapers and baggage for SNCF, the Commission can uphold its view recorded in the Sernam 1 decision that the sum of €55 million paid under the abovementioned contracts for 11 months of the financial year 2000 may be authorised in the framework of Sernam’s restructuring.

(223)

Restructuring costs

Financing sources

(224)

France is requiring to submit an annual report on the development of restructuring and compliance with the present decision. The first report must be submitted not later than six months after the date on which the present decision is notified.

(225)

The Commission concludes that France has paid the amount of €503 million (52) in aid under conditions different from those approved in the Sernam 1 decision and has unlawfully paid the sum of €41 million in additional aid.

(226)

However, taking account

the Commission considers that the sum of €503 million in aid for Sernam is compatible with the Treaty as