In so doing the CAT has confirmed the high bar of irrationality needed to sustain a challenge against a public authority’s deployment of the Subsidy Control Principles at Schedule 1 of the Subsidy Control Act 2022 (“the Act”) in order to afford a subsidy with a lawful exemption route. This means that provided a public authority giving a subsidy pursuant to the Subsidy Control Principles (“the Principles”) has thoroughly reviewed and sensibly interrogated each one, and not based a decision either on fundamentally flawed or incomplete data, then its conclusions are unlikely to be irrational and therefore difficult to overturn. Moreover this emphasises that the CAT will not substitute its discretion for that of the public authority in question provided a thorough analysis has been done, while concluding in this case that Bristol Airport’s claims appear to be no more than differences of opinion on the weight to be given to a variety of issues.
The CAT also addressed further issues with respect to Sections 19 and 20 of the Act on rescue and restructuring subsidies to ailing or insolvent enterprises, drawing the important conclusion that these provisions of the Act do not of themselves automatically preclude other subsidies (not for rescue or restructuring) to such enterprises.
What has happened and what was at stake?
Judgment was given on 7 April 2026 and rejected an appeal by Cardiff Airport against a decision by the Welsh Government (“WG”) decision to award a £215m subsidy package to its wholly owned subsidiary Cardiff International Airport Limited (“CIAL”) in April 2025, which itself followed a previous referral of the proposed subsidy to the Competition & Markets Authority (“CMA”) and which was the subject of a CMA report published in October 2024. The subsidy given involved two packages: (i) for non-passenger business development and enhancement, including several significant infrastructure upgrades; and (ii) for commercial passenger air route development, by providing CIAL a fund from which it could provide incentive payments to new and existing airlines in order to expand air routes flying in and out of Cardiff. The packages were for £105.2m and £100m respectively.
The appeal was based on four grounds, all of which were ultimately rejected. The grounds were:
- that WG has failed to properly consider whether CIAL was an ailing or insolvent enterprise within the meaning set out in the Act;
- that in light of this WG had failed to properly assess and apply Sections 19 and 20 of the Act which impose strict qualifications on subsidies for rescue and restructuring ailing or insolvent enterprises, respectively;
- that WG failed to properly apply the Principles with respect to the subsidy package awarded; and
- that WG failed to properly consider Section 28 of the Act with respect to the qualified prohibition on subsidies to air carriers for the promotion of specific routes.
What does the judgement tell us about the standard of assessment of the Principles?
The Court concluded that on the evidence, WG had appropriately approached and considered each of the Principles prior to giving the subsidy to CIAL. Most importantly the CAT concluded that WG had not acted irrationally in respect of any of its conclusions and that this was the appropriate (for judicial review) and high threshold that would need to be overcome by the challenger, which it has not done in this case.
Bristol Airport contended that WG had failed in its analysis in each of the Principles (bar Principle D) in what the Court described as a “kitchen sink” approach, but was unable to sustain any finding of irrationality in any of them. The CAT emphasised that a public authority had a wide margin of discretion in how it formed conclusions against a range of issues, particularly given the policy judgements inherent in providing subsidies to deliver public policy objectives. The CAT specifically noted that “at best [Cardiff Aiport’s] arguments illustrate that there is room for disagreement about some of the many issues that feed into the [WG] decision. That is not sufficient however to show that no reasonable authority in the position of [WG] would have acted in the same way.”
In our view it is noteworthy that the challenge followed a CMA referral and corresponding published report. That CMA report had been relatively critical of the WG approach as per the materials referred but crucially the CAT noted that WG had consulted and used external experts (notably Grant Thornton and specialist aviation advisory firm Altair subsequent to the publication of the CMA report, in order to refine and shape WG’s final analysis of the Principles before giving the subsidy. It was this revised analysis of the Principles that was the important final evidence point contested in the case.
What does the judgment tell us about rescues and restructuring subsidies for ailing or insolvent enterprises?
Cardiff Airport alleged that WG had failed to discharge its responsibilities under Sections 19 and 20 of the Act (rescue and restructuring subsidies respectively) by failing to conclude that CIAL was ailing or insolvent (Ground 1) and compounding this by accordingly not addressing the requirements of Sections 19 and 20 of the Act which set down particular restrictions under which such subsides may only be given (Ground 2).
The CAT opted to determine Ground 2 first and found that Sections 19 and 20 were specific to rescue and restructuring subsidies and while those two concepts were not precisely defined it was clear enough that they represented specific types of subsidies, for particular purposes, which did not encompass every subsidy as might be given to an ailing or insolvent enterprise. The CAT considered the background to the Act including the EU/UK Trade and Cooperation Agreement 2020 (“the TCA”) and corresponding provisions in EU law for State aid to undertakings in difficulty. The CAT concluded that the construction of the relevant provisions in the Act were plain in that Sections 19 and 20 covered rescue and restructuring subsidies only, and that the existence of these provisions could not be construed as preventing other types of subsidies from being granted to ailing or insolvent enterprises. The CAT observed that the Department for Business’ published Statutory Guidance on UK Subsidy Control was also clear in this respect, noting “there is no wider prohibition against giving subsidies that are not rescue or restructuring subsidies to ailing or insolvent enterprises”. The CAT therefore concluded it would be possible for a subsidy to be granted lawfully to an ailing or insolvent enterprise “through other permitted routes in the Act where the purpose of the subsidy is not a rescue or restructuring”. That this was different to the approach employed by the EU for State aid to undertakings in difficulty was not relevant.
In considering Ground 1 the CAT found first that WG had extensively considered the question of whether CIAL was ailing or insolvent and had rationally concluded that it was not. This was primarily because at the time of award of the contested subsidy CIAL already enjoyed an Extended Standby Credit Facility (ESCF) granted from WG in July 2024, and which extended a previous credit facility given in December 2023. WG had concluded from these facilities that CIAL was for the time being a going concern, and the CAT found that WG had not acted irrationally in making this determination. The CAT noted that the ESCF had been granted by WG previously on the basis it was a commercial arrangement as per the Commercial Market Operator or “CMO” principle, and this had not been challenged at the time, was not the subject of the present proceedings, and there were no reasons to doubt it. The CAT went on to note that CIAL’s financial position would be a relevant factor in WG’s assessment of the Principles but that WG had looked at this carefully (including with the help of external expert advice) and therefore it could not be said that WG had failed to take adequate steps to satisfy itself about that issue.
In conclusion, the CAT found that WG was not bound to apply Sections 19 and 20 having reasonably concluded that CIAL was not ailing or insolvent, and/or that the subsidy was not for the purpose of rescuing or restructuring CIAL, anyway. It was therefore open to WG to give the subsidy without regard to Sections 19 or 20, which it had ultimately done.
What does the judgment tell us about the prohibition on subsidies to air carriers for the promotion of routes?
The last ground concerned the second package of the contested subsidy which was provided to CIAL to enable it to provide incentives to air carriers to fly in and out of Cardiff. The CAT concluded first that the subsidy in this respect was given to CIAL (as an airport) to provide it with funds and therefore not to air carriers, and that the qualified prohibition contained in Section 28 of the Act applied to subsidies to air carriers only.
The CAT further noted that the second package was given to CIAL to provide it with a fund from which it could make investments by way of commercial incentives paid to air carriers, which would therefore not be subsidies passing through to those air carriers in any event. The second package was noted to require that CIAL approached each incentive payment to air carriers in line with the CMO principle (and this was counted upon in WG’s assessments of the package) and as such there could be no question that this would represent a series of subsidies to air carriers to which Section 28 must apply. In practice commercial airports consider incentive payments to air carriers in order to drive footfall through their facilities by way of commercially calculated investments, and this is what CIAL would have to do with the second package. The CAT therefore finally concluded that Section 28 could only apply to a subsidy to an air carrier for the promotion of a route and that had not occurred on the facts of the case.
Commentary
The clarity emerging from the case relating to rescue and restructuring subsidies is welcome in that it endorses what is specifically stated in the Statutory Guidance that public authorities are not prohibited from providing other types of subsidy to such enterprises, provided they have properly applied all relevant conditions of an authorised exemption route in order to get there. The CAT clearly did not say that a given enterprise’s precarious financial position would not be relevant to a Principles analysis (for example) but was ultimately not required to comment on how suitably to apply the Principles specifically to an ailing or insolvent enterprise, on the basis CIAL was properly adjudged not to be ailing or insolvent at the relevant time anyway.
Perhaps more importantly for day-to-day Subsidy Control practice however the CAT was very plain with regard to the irrationality test for applying the Principles generally, noting that the rationality of the decision may be challenged “on the basis that the decision is outside the range of reasonable decisions open to the decision maker”. This is a very high bar to cross and the CAT firmly concluded that Bristol Airport had not crossed it, and therefore the subsidy awarded should stand.
The usual criticism of the Principles is that they are somewhat imprecise and therefore lack legal certainty, ie. it is hard for an authority to know decisively whether they have been satisfied or not. The CAT has helped this by clearly showing the legal standard to which such assessments should be subjected. In so doing it is clear the law is not looking for “perfection” in any given Principles analysis, and there can be significant room for interpretation arising from any number of issues. However the legal standard (ie. “good enough”) is that the conclusions drawn from the analysis should be within the range of reasonable decisions open to the decision maker, so not irrational. The lesson to public authorities is therefore to be sure to have careful audit trails for all considerations made and to ensure full and complete checks of all conceivably relevant issues, without material omissions or contradictions. Subsidies awarded under the Principles following such an analysis will be very hard to overturn.
This case concerned what are high value subsidies under any analysis. The CAT was not called upon to consider what what might an authority do in a much lower value situation, for example one in which there was a question of proportionality of effort required to the risk of distortion created by the subsidy in question (as per notes in the Statutory Guidance). It may be interesting to see how such an irrationality test might be applied in that alternative context.
