State aid - Case 8

Application of the Market Economy Investor Test to a larger European Airport

In this project we assessed the compatibility of incentive payments to airlines by a publicly-owned airport with the market economy investor principal (MEIP). To this aim, we analysed the probability with which an airline chooses the airport due to the incentive payments and simulated the critical probability for which the incentive payments would break even on a discounted cash flow basis. The critical probability was then compared with the expected probability according to industry sources. The discount factor used is based on the Weighted Average Cost of Capital for which we estimated the costs of own capital using the Capital Asset Pricing Model.