State aid: Commission approves a repayable advance of €12 million to Volvo Aero Corporation for the development of a novel aero engine component

The European Commission has authorised under EU State aid rules a repayable advance of 120 million Swedish crowns (approx. €12 million) that Sweden intends to grant to Volvo Aero Corporation for the development of the Intermediate Compressor Case (ICC) for the Trent XWB engine. The engine is being developed by Rolls-Royce and will equip the new Airbus A350 XWB aircraft family. The Commission found that the aid complies with the requirements of the EU framework for state aid for Research, Development and Innovation, because the positive effects of the aid outweigh potential distortions of competition brought about by the aid.

“The development of the new aero engine component would reduce the engine’s weight and improve fuel consumption of the aircraft, which will reduce the impact on the environment, without creating distortions of competition as Volvo Aero has a very limited share of the aero engine component’s market”, said Commission Vice-President in charge of competition policy Joaquín Almunia.

The decision to grant a repayable advance of equivalent €12 million to Volvo Aero Corporation was notified to the European Commission for clearance, and the project was assessed under the Research & Development & Innovation Framework (see IP/06/1600 and MEMO/06/441).

Volvo Aero is a risk and revenue sharing partner in the Trent XWB engine programme and is responsible for the development of the Intermediate Compressor Case (ICC) for the new Rolls Royce’s Trent XWB engine that will equip the Airbus A350 XWB aircraft family. The repayable advance shares the risk of the fabricated titanium ICC development and covers 40% of the eligible R&D costs of industrial research and experimental development activities.

The Swedish authorities submitted evidence showing that without the risk-sharing loan, the project would not get finance due to its capital intensive nature, the risks involved and delayed return on the investment, if any – the so-called market failure criterion that the Commission needs to verify.

The Commission verified that the aid will be limited to the minimum necessary for Volvo Aero to carry out the project. In case of success, the aid will be fully repaid, including a reasonable interest. It considered the potential impact on competition to be limited as Volvo Aero has a relatively small share of the engine component’s market, which has good growth prospects.

Finally, the fabricated titanium ICC envisaged by Volvo Aero will offer a lower weight alternative to a conventional casted component, potentially contributing to reduced fuel consumption of the aircraft and a lesser impact on the environment.

The Commission, therefore, found the project complies with the EU Framework for State aid for research and development and innovation.