Airport Subsidy Challenged in the CAT

We heard in the news yesterday (9 July 2025) that the fourth subsidy control challenge is being brought before the Competition Appeal Tribunal (the “CAT”). The challenge is to be brought by Bristol Airport against the Welsh Government’s subsidy to Cardiff International Airport (the “Airport”).

The subsidy is an award of up to £205 million over a ten-year period in the form of an investment package (the “Subsidy”). This size of Subsidy has been described as “unprecedented” in the UK airport sector. The Subsidy was awarded on 3 April 2025.

In October 2024, the Subsidy Advice Unit (the “SAU”) published a report (the “Report”) in relation to the Subsidy.

At the time, Bristol Airport cast doubt on the legality of the Subsidy. The Subsidy may unfairly benefit Cardiff Airport, and may therefore negatively impact Bristol Airport’s business.

At the time of the Report, there was a clear possibility that, should the Welsh Government make the award without amending its original assessment (the “Assessment”), there may be opportunity for interested parties to challenge the Subsidy. Bristol Airport has now done so.

In this regard, the challenge is particularly noteworthy. It is the first challenge to come before the CAT where the application of the subsidy control principles is in question. Previous challenges focus on whether a subsidy arises at all.

The Court of Appeal set a high bar for judicial review of principles assessments in the Bulb litigation.[1] The CAT’s approach here will be enlightening for both public authorities and potential appellants elsewhere alike.

It is worth noting that the CAT has not yet published details of the appeal. We will be keeping an eye on progress in this regard.

The challenge is likely to focus on the Welsh Government’s application of the subsidy control principles. In this regard, the Report is a useful starting point (albeit of course the Assessment may have been modified in the intervening period). We summarise the Report below.

Executive summary

The Report is a stark indication that the subsidy control principles may not have been accurately applied in the Assessment. Compliance with the subsidy control principles is a statutory requirement.

The Report begins by setting out that the Welsh Government has considered the Act “at a high level”. It goes on to make a general statement in the summary that the Assessment should have been supported by “objective and verifiable evidence”.

Additionally, the Report considers that improvements could be made in respect of 4 of the 7 subsidy control principles – principles B,C, D and F. This is a high number of principles to improve upon when compared to other SAU reports.

While the Report is not binding, it offers an insight into flaws in the Welsh Government’s Subsidy argument.

The Subsidy

The Subsidy takes the form of an investment package of up to around £205 million over a ten-year period. The Airport is owned by the Welsh Government at arm’s length via a holding company, WGC Holdco Ltd (“WGC Holdco”).

The investment package consists of:

• Capital investment to support new non-passenger business development at the Airport;
• Financial packages to support air route development in the form of incentive payments to existing and new airlines to expand their operations; and
• Associated capital works to allow for an increase in passenger throughput and reduce energy consumption.

The Subsidy is given against a backdrop of other sources of financial support provided by the Welsh Government over time. The Welsh Government has invested £179.6 million in the Airport since 2013, including a rescue and restructuring grant in March 2021 of £42.6 million.

The Assessment sets out that the specific policy objective of the Subsidy is to grow the regional economic activity associated with the Airport and maximise the potential agglomeration benefits linked with the wider aviation and aerospace sectors in the region. It is intended to address equity issues identified by the Welsh Government.

The Report

The Report, published on 2 October 2024, states that the Welsh Government has considered the subsidy control principles “at a high level”, and that it “sets out a clear policy objective that is narrowly focused on the development of the Airport and explains how the policy objective addresses an equity rationale”.

The Report makes the general observation that the Assessment should ensure all statements underpinning the Assessment should be supported by objective and verifiable evidence, and that all supporting evidence should be correctly referenced.

In terms of specific subsidy control principles, the Report makes the key points set out below.

The Assessment should present a clear counterfactual (Principle C)

The Assessment sets out that the Airport will face challenges in the future. However, the Report deems that the extent of these challenges, and the scope for the Airport to undertake any of the activities which will be funded through the Subsidy, are unclear.

The Report states the Assessment should be clear on what is the most likely counterfactual, providing appropriate supporting evidence, and explaining whether in the counterfactual (absent the Subsidy), the Airport would undertake any of the activities that would have been funded through the Subsidy or contributed to regional economic activity. The counterfactual should then be used as a baseline against which changes in economic behaviour, additionality and competitive distortions resulting from the Subsidy are assessed.

The Assessment should provide more evidence to support the conclusion that all costs covered by the Subsidy are additional and would not have been funded otherwise (Principle D)

The Assessment explains that the Subsidy has been designed to focus on enabling growth in a sustainable manner and that, while it would offer some kind of package to airlines on the Subsidy, they would be too small to attract significant new business. It also explains that absent the Subsidy, the Airport would try and offer some support to airlines to incentivise new route development opportunities.

Third parties have challenged whether this would meet the additionality principle, or whether such activities would be funded by the Airport absent the Subsidy.

In the absence of a clear counterfactual, the Report states that that the Assessment does not clearly demonstrate whether any of the planned projects would go ahead, absent the Subsidy. More evidence should be provided to support the conclusion that the costs covered by the Subsidy are additional and would not have been funded otherwise.

The Assessment should provide additional explanation and supporting evidence to show that the Subsidy is proportionate to its policy objective (Principle B)

The Assessment states the grants will be the minimum necessary, and robust assessments of funding requests will be conducted. It notes that the Welsh Government is incentivised to spend no more than its own budget and that monitoring and evaluation activities will be undertaken. It argues the grant is proportionate by comparing the size of the investment to commercially funded investment projects at other UK airports and other subsidies, and briefly considers characteristics of the Subsidy which are relevant to proportionality.

However, the Report states the Assessment should:

• explain how the overall Subsidy maximum was determined and provide evidence demonstrating the subsidy was set to keep it to the minimum amount necessary;
• consider the size of the Subsidy relative to the size and the costs of the beneficiary, and/or the relevant markets; and
• explain in detail the checks and processes WGC HoldCo and the Welsh Government will use to ensure the individual funding disbursements will be kept to the minimum necessary to achieve the stated policy objective.

To note, one third party submission noted the Subsidy would exceed the Airport’s current annual turnover in each year of the 10-year duration; another stated that the size of the Subsidy is unprecedented in the UK airport sector.  

The Assessment should more systematically set out and evidence potential competition and investment impacts, drawing on the relevant parts of the Statutory Guidance (Principle F)

The Assessment briefly discusses design characteristics for the Subsidy and argues that its business-to-business aviation focus and different routes to its closest competitor reduce the risk of distortive impacts. However, the Report deems it provides little explanation or evidence as to how the Subsidy design will help minimise distortions. The Assessment should more systematically assess the design features in the Statutory Guidance, and consider the extent to which the Subsidy’s implementation in relation to those design features contributes to minimising negative effects on competition and investment.

The Assessment acknowledges the potential for distortive effects on competition or investment in the air passenger market. In particular, the Assessment:

• sees Bristol Airport as the market operator most likely to be affected, and states that its larger size and different growth strategy reduce the risk of effects on competition or investment;
• discusses potential displacement impact on the UK and international airports. In particular, it states that Birmingham Airport is unlikely to be affected to a significant degree by an increase in passenger traffic at the Airport, given the limited scope for overlaps in passenger demand between the two airports; and
• expects demand for MRO and general aviation services to outstrip supply in the near/medium-term, and considers the market to be less at risk of distortions from the subsidy.

Several airports expressed concerns about distortion on competition in third party submissions. Bristol Airport showed a large overlap of catchment area between itself and Cardiff Airport. Additionally, Regional & City Airports and Birmingham Airport argued that some of these markets operate UK-wide and potentially EU-wide, and both anticipated the risk of substantial distortion to competition and investment from the Subsidy.

The Report states that the Assessment should:

• identify the product and geographical markets most affected by the Subsidy, as well as the most important competitors for each of the beneficiary’s affected products and services;
• provide more detail and supporting evidence on the potential distortive impacts on competition;
• consider how the Subsidy could impact competition (directly or indirectly) across the different supply chains of the proposed investments;
• explain how allocating part of the Subsidy towards creating new passenger routes and attracting low-cost carriers implements and is consistent with the stated strategy to not compete on passenger volumes; and
• consider whether the Subsidy could result in displacement of private investment.

Other Requirements of the Act

The Welsh Government confirmed no other requirements set out in Chapter of 2 of the Subsidy Control Act 2022 apply to the Subsidy. However, several third parties, having referred to the Airport’s historical performance accessed from publicly available sources, submitted that the Subsidy appears to be for the purpose of rescuing or restructuring an “ailing or insolvent” enterprise.

The Report considers that the Welsh Government clearly explains its assessment as to why the Subsidy does not engage section 20 of the Subsidy Control Act 2022, but in light of third party submissions and the previous rescue and restructuring package provided in March 2021, the Assessment could be usefully improved by referring to underlying financial evidence and data leading to the conclusion the Airport is not “ailing or insolvent”.

Discussion

The Report was not binding on the Welsh Government. However, the Report could well have been used by Bristol Airport as a useful tool in mounting its challenge before the CAT.

The challenge has not yet been publicised by the CAT, but given the high-profile nature of the Subsidy, has already received media attention.

The case brings to an end the pattern of subsidy control challenges a) being used as an additional litigation tool following earlier claims in other legal contexts (most notably procurement); and b) being used to challenge “shadow subsidies” – i.e. decisions of public authorities to classify financial assistance as non-subsidy.

This case is very different. Cardiff Airport knew that the Subsidy would have a detrimental effect on Bristol Airport. This was made clear in the Assessment. The question will be to what extent the Welsh Government’s balancing exercise was carried out compliantly. Do the positive impacts of the Subsidy outweigh the negative impacts on Bristol Airport’s business?

The case will be illuminating, particularly in terms of how the CAT assesses the consistency of the subsidy with the subsidy control principles. The next key update will be when the CAT publishes the summary of Bristol Airport’s appeal. That will provide further clarity as to the specific grounds of appeal. We will keep our clients updated as to the same.

Sharpe Pritchard’s market-leading subsidy control team has a wealth of experience advising on the interpretation and application of subsidy control legislation and EU State aid rules.

The team advises on the full range of subsidies, from minimal financial assistance awards to subsidies of particular interest considered by the SAU.

Our experienced and active dispute resolution team is experienced in advising both public authorities and challengers in respect of judicial review claims.