EC Approves Spanish Yard Restructure

The European Commission has approved, under the terms of the EC Treaty’s rules allowing Member States to take measures to protect essential security interests linked to defence industries (Article 296 of the EC Treaty), a reorganisation of the Spanish public military shipyards. These yards were formerly owned by IZAR but have recently been taken over by a new company called Navantia.

The solution allows Spain to protect its essential security interests by rescuing its military shipyards, while ensuring that there will be no undue distortion of competition in the market for civil shipbuilding and ship repair. The solution also takes account, to the greatest possible extent, of the social and regional problems involved in this case.

Competition Commissioner Neelie Kroes said “This is an important step in the reorganisation of the public Spanish shipbuilding sector. Combined with the foreseen sale of IZAR’s civil shipyards and generous social measures, this reorganisation will safeguard Spain’s military shipbuilding needs, and eliminate distortions of competition in civil shipbuilding.”

IZAR was, until the end of 2004, the main shipbuilding company in Spain. Its activities were spread over 11 sites in Galicia, Asturias, Basque Country, Valencia, Murcia, Andalucia and Madrid. It had around 10,700 employees. Around half of the sales concerned military production.

By two decisions in 2004 the Commission decided that €864 million of state aid to IZAR was not in line with EC State aid rules and had to be recovered(see IP/04/633 and IP/04/1260). Spain invoked Article 296 of the EC Treaty, which allows a Member State to “take such measures as it considers necessary for the protection of the essential interests of its security which are connected with the production of or trade in arms, munitions and war materials”, with the objective of rescuing the military shipbuilding activities from a foreseen bankruptcy of IZAR. This rescue would take place by transferring IZAR’s military shipyards to a new public company (Navantia).

Following discussions with the Commission, Spain has agreed to a range of measures and commitments in accordance with Article 298 of the EC Treaty that are valid for ten years:

Navantia’s civil sales will not exceed 20% of total sales, as a 3-year moving average Navantia will act on the basis of market conditions as regards its civil activities. It will therefore keep separate internal accounts for civil and military activities. For each contract for a new civil ship, a cost calculation will be provided to the Commission. For ship repair, information will be provided annually Navantia’s civil activities will not benefit from any state aid, except export credits and development aid in line with the shipbuilding state aid framework and OECD criteria. the workforce of Navantia, will not exceed 5562 persons.

IZAR was put into liquidation on 1 April 2005. The liquidators plan to sell the remaining assets (shipyards in Gijon, Sestao and Sevilla and a motor factory in Manises). The sale of these assets should take place under market conditions, on an open, transparent and unconditional basis, as otherwise the buyers might find themselves obliged to pay the outstanding amounts of illegal state aid due to be recovered from IZAR.