2025/1167

30.6.2025

COMMISSION DECISION (EU) 2025/1167

of 29 November 2024

on State aid SA.50952 (2022/C) (ex 2018/FC) implemented by Germany for DB Cargo

(notified under document C(2024) 8610)

(Only the English text is authentic)

(Text with EEA relevance)

THE EUROPEAN COMMISSION,

Having regard to the Treaty on the Functioning of the European Union, and in particular Article 108(2), first subparagraph, thereof,

Having regard to the Agreement on the European Economic Area, and in particular Article 62(1), point (a), thereof,

Having regard to the decision by which the Commission decided to initiate the procedure laid down in Article 108(2) of the Treaty on the Functioning of the European Union, in respect of the measures identified in case SA.50952 (2022/C) (ex 2018/FC) (1),

Having called on interested parties to submit their comments pursuant to the provisions cited above (2) and having regard to their comments,

Whereas:

1.   

PROCEDURE

(1) On 19 April 2018, the Commission received a complaint concerning alleged State aid granted to DB Cargo Aktiengesellschaft (‘DB Cargo’) (3).

(2) By letter of 31 January 2022 (the ‘Opening Decision’), after various submissions from the complainant and Germany described therein, notably after having transmitted the complaint with a first request for information on 20 September 2018, the Commission informed Germany that it had decided to initiate the procedure laid down in Article 108(2) of the Treaty on the Functioning of the European Union (TFEU) in respect of four measures granted in favour of DB Cargo.

(3) The Opening Decision was published in the

Official Journal of the European Union

on 19 August 2022 (4). The Commission called on the German authorities and interested partie+s to submit their comments on the Opening Decision within one month.

(4) The German authorities submitted to the Commission their observations on the Opening Decision by letter dated 21 April 2022. In addition, Germany sent further observations and information on 17 May, 8 June, 25 July, 28 August, 26 September and 23 October 2023. In 2024, Germany filed additional information on 13 March, 10 June and 1 July.

(5) On 19 September 2022, the Commission received comments from the European Rail Freight association (ERFA), a European organisation representing the interests of private and independent rail freight companies, and from the complainant. On 18 November 2022, the Commission sent the comments of the interested parties to the German authorities inviting the latter to submit their observations, which they did by letter dated 18 January 2023.

(6) The Commission requested further information and clarifications from Germany by letter of 26 July 2022, to which Germany replied by letter of 26 September 2022. The Commission requested additional information from Germany by letters of 1 August and 27 September 2023 (to which Germany replied by letters of 31 October and 9 November 2023). The Commission also made requests by letters of 15 May 2024, 5 September 2024 and 17 November 2024, to which Germany replied by letters of 10 June, 5 and 27 September, 1 and 21, 22, 23 and 25 November 2024.

(7) The Commission services met the German authorities, including on the following dates in 2023: 24 February, 19 April, 12 May, 30 June, 28 July, 18 August, 29 August, 21 September, 21 November and 20 December, and on the following dates in 2024: 13 March, 30 April, 13 June, 5 July, 11 July, 12, 19 September and 19 and 25 November.

(8) By letter of 21 November 2024, the Government of the Federal Republic of Germany agreed exceptionally to waive its rights deriving from Art. 342 TFEU in conjunction with Article 3 of the EC Regulation 1/1958 and to have the present Decision adopted and notified pursuant to Article 297 of the Treaty in the English language.

2.   

DETAILED DESCRIPTION OF THE MEASURES

2.1.   

DB Cargo: corporate history, structure and corporate rules

(9) DB Cargo is a rail freight service operator headquartered in Mainz, Germany. It provides rail freight services in 17 countries, including Member States. DB Cargo itself operates within the internal market through domestic subsidiaries, such as TFG Transfracht GmbH, as well as international subsidiaries including in other Member States, such as DB Cargo Belgium BV, DB Cargo Scandinavia A/S, DB Cargo France SAS, DB Cargo Nederland N.V., DB Cargo Polska S.A., or Transfesa Logistics, S.A. (Spain) (all together hereinafter ‘DB Cargo Group’) (5).

(10) DB Cargo is a subsidiary of Deutsche Bahn Aktiengesellschaft (‘DB AG’). DB AG is a holding company and parent of a number of domestic and international subsidiaries, including DB Cargo (DB AG and the entirety of the companies owned by DB AG are hereinafter referred to as ‘DB group’). The DB group operates in the field of national and international freight and passenger transport, logistics and ancillary services in rail transport. Figure 1 shows a simplified depiction of DB group’s various operations.

Figure 1

DB group business organisation

[Bild bitte in Originalquelle ansehen]

Source:

Deutsche Bahn integrated annual report 2023.

(11) Since its creation in 1994, DB AG has been fully owned by the German Federal State (‘Bund’). DB AG has been controlling, among other business lines, the rail freight business of the DB group. Over the years, DB AG had a shareholding in the company that was operating the rail freight business, which varied between 92 % and 100 %; since 2011, DB AG holds 100 % of the company operating the rail freight business. The corporate organisation and location of the rail freight business within the structure of DB group has changed over time.

(12) In the period under investigation (as from 1 January 2012 for Measure 1 and as from 20 September 2008 for Measures 2 to 4), as described in Section 2.3, DB AG’s rail freight business has been operated by several entities. For ease of reference, unless stated otherwise, the term ‘DB Cargo’ designates the entity belonging to DB group and operating that group’s rail freight business:

(a) From 1 September 2003 until 15 February 2009, the entity operating rail freight business was registered under the company name Railion Deutschland AG.

(b) From 16 February 2009 until 29 October 2012, the entity operating rail freight business was registered under the company name DB Schenker Rail Deutschland AG.

(c) On 30 October 2012, the company name was changed to DB Schenker Rail AG.

(d) Since 1 March 2016, the rail freight business has been operated under the company name DB Cargo.

(13) DB Cargo has been a direct, 100 %-owned subsidiary of DB AG since 2016. Prior to that, as of 1 January 2012, DB Cargo was a direct subsidiary of DB Mobility Logistics AG (‘DB ML’). Before 2012, since 2003, DB Cargo was an indirect subsidiary of DB ML. DB ML was directly 100 %-owned by DB AG, while, as described in recital 11, the shareholding in the rail freight operating company was at minimum 92 %. Thus, since 2011 DB Cargo was fully indirectly held by DB AG, while prior to 2011 DB AG had had at minimum a 92 % indirect stake in DB Cargo.

(14) Until 31 December 2015, DB ML was in charge of various services offered by DB group, in particular DB group’s rail transport activities (passenger and freight). DB Cargo (which until 29 February 2016 was registered as DB Schenker Rail AG) was a 100 %-owned subsidiary of DB ML, along with other subsidiaries such as the two rail passenger transport subsidiaries DB Regio AG and DB Fernverkehr AG. On 26 August 2016, DB ML was merged into DB AG. As a result, DB Cargo, DB Regio AG and DB Fernverkehr AG became direct subsidiaries of DB AG. The merger agreement was signed between DB AG and DB ML and consequently approved by the respective General Assemblies of the two companies on 15 July 2016. The merger agreement had a retroactive effect as of 1 January 2016.

(15) DB AG, since its creation in 1994 and DB Cargo since 2009 are incorporated as

Aktiengesellschaften

(‘AG’), i.e. stock companies under German company law. The same held true for DB ML for the duration of its existence.

Aktiengesellschaften

are, in particular, governed by the German Law on public limited companies (

Aktiengesetz

– AktG). In an AG, the shareholders are represented in the General Assembly (

Hauptversammlung

). The General Assembly elects the shareholder representatives to the Supervisory Board (

Aufsichtsrat

). Employee representatives are elected in accordance with the German co-determination act (

Mitbestimmungsgesetz

– MitbestG). The Supervisory Board elects the members of the Board of Directors (

Vorstand

), responsible for managing the AG. Whilst the members of the Board of Directors are elected by the Supervisory Board, according to the legislation governing

Aktiengesellschaften

the Board of Directors in an

Aktiengesellschaft

is independent from the Supervisory Board as well as from the General Assembly in the sense that the latter, in principle, cannot issue instructions to the Board of Directors (6).

(16) Table 1 shows the revenues of DB group, as well as of DB Cargo group and of DB Cargo taken individually, for the period under investigation.

Table 1

Revenue of DB group and DB Cargo 2012 to 2023

(17) Concerning the decision-making process within DB group, the rules of procedure (‘

Geschäftsordnung

’) of DB AG’s Board of Directors reserve for its Board of Directors the decisions concerning the short-term, as well as the medium-term planning and the long-term strategic targets. Furthermore, the Board of Directors also decides on the issuance, amendment and repeal of group guidelines. With regard to specific, individual measures, decisions by the Board of Directors are also required, even if they concern subsidiaries or associated companies, for (8):

(a) Starting and discontinuing key areas of activity, fundamental changes to the company organisation, and concluding, amending and cancelling company agreements (9).

(b) The establishment of companies; acquisition, sale and change of shareholdings (including conversion and capital measures) with a value of EUR 10 million or more, with the exception of measures within the group.

(c) The acquisition, sale, encumbrance and other disposal of real estate and other property rights with a value of EUR 10 million or more, whereby the granting of land mortgages is excluded.

(d) The issuance of securities, taking out loans and granting of loans: not including borrowing outside the group with a term of less than one year and the granting and taking out of loans within the group.

(e) The acceptance and granting of guarantees and securities outside of the normal business; acceptance and granting of guarantees and securities within the framework of the normal business with a volume of EUR 10 million or more.

(f) The approval of investment, expenditure, rental, and leasing projects included in the corporate planning with a volume of EUR 250 million or more; approval of projects included in the corporate planning whose total value / total value forecast or equity requirement exceeds the planning by EUR 10 million or more; further approval of projects not included in the corporate planning with a volume of EUR 10 million or more.

(g) Changes in the composition of board, management and other leading positions, insofar as they belong to the Group Management Circle.

(h) The appointment and dismissal of general representatives of the company as well as granting and revocation of powers of attorney for the company.

(18) According to the rules of procedure, decisions within the Board of Directors of DB AG are made unanimously. If no consensus can be reached, the decision must be approved by a two-thirds majority of the members participating in the decision-making process in order to be valid.

(19) Concerning relations with the Supervisory Board of DB AG, the Board of Directors of DB AG submits to the Supervisory Board annually in writing a short- and medium-term corporate plan covering all of the company's key areas of activity.

(20) Moreover, some individual measures, even if they concern subsidiaries or associated companies, necessitate approval by the Supervisory Board of DB AG. According to the catalogue of business transactions requiring such an approval by the Supervisory Board of DB AG, such measures include notably the following (10):

(a) Initiation of significant new fields of activity or abandonment of existing significant fields of activity;

(b) Fundamental changes in the company and group organisation;

(c) Changes in the distribution of business of the board and changes in the company's general representatives;

(d) Establishment, takeover or dissolution of companies and acquisition and sale of company shareholdings, including changes in the shareholding ratio and participation in a capital increase against contributions, in each case with the exception of intra-group transactions if the value of the individual measure exceeds EUR 25 million;

(e) Measures relating to group companies and shareholdings that are of fundamental or prejudicial importance for the company or the group or have significant financial implications;

(f) Acquisition, sale and encumbrance of real estate and property rights as well as other disposals thereof if the value of the individual measure exceeds EUR 25 million;

(g) The issuing of bonds or other borrowings with a term of more than one year, with the exception of borrowings from subsidiaries or associated companies;

(h) The assumption of guarantees and the provision of promises of debt, and other securities outside of the normal business, if the value of the individual measure exceeds EUR 5 million;

(i) The granting of loans outside of the normal business if the value of the individual measure exceeds EUR 5 million, with the exception of loans to subsidiaries or associated companies;

(j) Cooperation agreements that go beyond the scope of the normal business and are of essential importance to the company;

(k) Investment projects not already included in the short- and medium-term corporate planning if their amount exceeds EUR 10 million in individual cases;

(21) According to DB AG’s Articles of Association, DB AG’s Supervisory Board consists of 20 members. 10 members are shareholder representatives and 10 members are employee representatives. Concerning the 10 shareholder representatives, 7 of those representatives are elected by the general assembly, while the Federal Government has the right to directly second 3 members to the Supervisory Board. According to the rules of procedure for DB AG’s Supervisory Board, decisions of the Supervisory Board require a majority of the votes cast, unless a different majority is required by law or in the Articles of Association of DB AG. If a vote results in a tie, the Chairman has two votes in a further vote on the same matter.

(22) DB Cargo’s rules of procedure for the Board of Directors provide that its Management Board collegially decides on all matters of fundamental or material importance for the company, as well as on matters assigned to it for joint decision by law, the company’s Articles of Association or its rules of procedure. Decisions are taken unanimously or, failing that, by qualified majority, in the same vein as described in recital 18 for DB AG’s Management Board. The rules of procedure of DB Cargo’s Board of Directors are supplemented by a compulsory catalogue of business transactions that need the approval of DB Cargo’s direct parent. Those measures are (11):

(a) All matters of fundamental and material importance;

(b) Initiating and abandoning key areas of activity, fundamental changes to the company organisation, and concluding, amending and terminating company contracts;

(c) Establishment of companies;

(d) Acquisition, sale and change (including conversion and capital measures) of shareholdings, with the exception of measures (i) in which only companies are involved that are – directly or indirectly – solely owned by DB AG or (ii) whose object is a shareholding that is not fully consolidated and whose value is less than EUR 10 million;

(e) Acquisition and sale of operations or parts of operations, with the exception of measures (i) in which only companies are involved that are – directly or indirectly – solely owned by DB AG; or (ii) whose value is less than EUR 10 million;

(f) Acquisition, sale, encumbrance and other disposal of real estate and other property rights with a value of EUR 10 million or more, whereby the granting of land mortgages is excluded;

(g) Issuance of securities, taking out loans and granting of loans; not including borrowings outside the group with a term of less than one year or the granting and taking out of loans to DB AG and DB Finance B.V.;

(h) Assumption and granting of guarantees and securities outside of the normal business; Assumption and granting of guarantees and securities within the framework of the normal business with a volume of EUR 10 million or more;

(i) Approval of investment, expenditure, rental, and leasing projects included in the corporate planning with a volume of EUR 250 million or more; Approval and release of projects included in the corporate planning whose total value or equity requirement exceeds the planning by EUR 10 million or more; furthermore, approval and release of projects not included in the corporate planning with a volume of EUR 10 million or more;

(j) Changes in the composition of management boards and other executive positions.

2.2.   

Activities of DB Cargo and position on various service markets

(23) Germany indicates that DB Cargo is one of Europe's leading rail freight operators, playing a pivotal role in transporting goods across the Union. Germany explains that DB Cargo’s mission is to provide sustainable domestic and cross-border rail freight services, with a focus on reducing carbon emissions and offering reliable logistics solutions across various industries.

(24) Germany further indicates that DB Cargo operates a vast network across Europe, moving millions of tons of freight annually, including raw materials, industrial goods, and consumer products and that DB Cargo leverages its extensive European rail network to deliver integrated, cross-border logistics, aligning with the EU's sustainability goals. In that context, Germany explains that DB Cargo is active in 13 Member States, with shares in total rail freight performance (measured in tonne-kilometre or tkm) (12) over […] % on a national level in Belgium, Denmark, France, Germany, The Netherlands and Romania (Table 2). Overall, in 2022, across the Member States in which DB Cargo is active, DB Cargo had a share of about […] % of the rail freight sector. Figure 2 shows DB Cargo’s market share in total in the internal market limited to the Member States in which DB Cargo is active. The Figure shows that between 2016 and 2022 DB Cargo has lost market shares in respect of volume of works, i.e. tonnes-kilometres.

Figure 2

DB Cargo market share in total in Member States with DB Cargo activity

[Bild bitte in Originalquelle ansehen]

Source:

SCI/Verkehr study dated 6 September 2023 as submitted by Germany, page 9.

(25) Germany indicates that, due to the growing integration of the European rail freight market, DB Cargo’s subsidiaries contribute to facilitating cross-border transport for DB Cargo’s customers within Europe and towards Asia as around […] % of the rail freight activities in 2022 in Germany were fulfilled through cross-border transports.

(26) Germany further explains that, in Germany, DB Cargo accounted for 43 % of all rail freight activities in 2022, with DB Cargo’s share continuously decreasing and competitors gaining larger shares in the German rail freight sector. Germany indicates that while DB Cargo still provided a share of 54 % of German rail freight traffic in 2016, its share declined by 11 percentage points (or 20 %) over the seven following years.

(27) In Denmark and the Netherlands, DB Cargo is acting as the incumbent (after integrating other players) with respectively […] % and […] % share of the local market.

Table 2

Position of DB Cargo on rail freight markets in various Member States

[Bild bitte in Originalquelle ansehen]

Source:

SCI/Verkehr study dated 6 September 2023 as submitted by Germany, page 8.

(28) Within the wider rail freight transport market, Germany explains that DB Cargo is active in three main sub-segments: (i) the single-wagon load segment; (ii) the block-train segment; and (iii) the combined transport segment.

(29) In the single-wagon load (SWL) segment, DB Cargo provides flexible freight services for smaller shipments. It collects individual wagons from multiple customers, consolidates them into full trains at marshalling yards, and transports them across Europe. This service is essential for industries that need to transport smaller quantities of goods that do not fill entire trains.

(30) In the block train segment, DB Cargo offers dedicated trains for large-volume customers, enabling direct, point-to-point transportation of goods without intermediate stops. This service is ideal for bulk goods such as coal, steel and chemicals, as well as for large container shipments. Block trains help industries ensure faster and more cost-efficient logistics, with high reliability over long distances.

(31) DB Cargo also operates in combined transport, where goods are moved using multiple modes of transport (e.g. rail, road, sea). In this model, containers, swap bodies, and semi-trailers are transported by rail for the long-haul portion of the journey and then transferred to trucks or ships for the final leg. This service supports the shift from road to rail, reducing CO

2

emissions and enhancing intermodal logistics solutions across Europe.

(32) Against that background, Germany argues that the European rail freight sector can generally be considered as competitive and that a recent study from 2022 commissioned by ERFA concludes on the competitive dynamics in the European rail freight sector as follows: ‘There is presently a high level of rivalry between rail freight actors. The foreign operations of incumbents and international challengers (former new entrants) are expanding their international activities, focusing mainly

on

long-haul international services. Consequently, shippers, forwarding and logistics companies, and intermodal operators can choose between several capable rail freight operators within one country or along international corridors’. Germany further argues that the same study also concludes with respect to the competitiveness of the German rail freight sector as follows: ‘As a result, the passenger and freight rail market in Germany became very competitive and new entrants were challenging Deutsche Bahn in all business segments. Today challengers have captured more the 50 % of the rail freight market in Germany.’

(33) With regard to the German rail freight sector, Germany submits that, when considering the different business segments of the rail freight sector as described above, DB Cargo was by far the most important provider of single-wagon transport within Germany in 2022 with about […] % of all single-wagon transport volumes. Germany submits that the lack of large competitors in that business segment can be explained by the fact that the single-wagon transport segment has been systematically loss-making for several years and therefore not attractive for new entrants without subsidies.

(34) In that respect, Germany submits while DB Cargo will transform its business segment to improve efficiency and product quality, as from 2023, Germany is in the process of increasing State support for single-wagon transport.

(35) With respect to combined transport, Germany further explains that DB Cargo lacks an integrated transport production system and that, while DB Cargo had a share of about […] % of the traffic in Germany in 2022, it is facing an increasingly strong and diversified competition from, among others, Metrans, HUPAC, TX Logistik and SBB Cargo International.

(36) In the block train segment, Germany indicates that DB Cargo had a share of […] % to […] % in the rail freight volumes in Germany in 2022 and considers it to be a modest market share when taking DB Cargo’s background as the incumbent rail freight undertaking into account. In that segment, DB Cargo faces strong competition from Captrain Deutschland (part of the SNCF group), TX Logistik (a pan-European, independent logistic firm) and a large number of smaller competitors.

(37) Table 3 provides an overview of DB Cargo’s share in the rail freight volumes in those Member States where it is active (as of 2022).

Table 3

Position DB Cargo per activity in various Member States

[Bild bitte in Originalquelle ansehen]

Source:

Germany’s submission of 31 October 2023, page 28.

(38) Germany indicates that DB Cargo provides only small shares of total transport volume in most of the relevant Member States. In this regard, Germany underlines that DB Cargo exceeds a share of […] % only in Denmark (13), Germany and the Netherlands (14) and that, in most Member States, DB Cargo supplies even less than […] % of rail freight services.

2.3.   

The measures subject to the investigation

(39) The Opening Decision identified the four following measures granted in favour of DB Cargo. They are described in this section taking into account the factual clarifications provided by Germany and by interested parties in the course of the investigation procedure.

2.3.1.   

Compensation of annual losses of DB Cargo under the profit and loss transfer agreement (‘Measure 1’)

(40) DB Cargo has been transferring its losses to its parent company on the basis of a control and profit and loss transfer agreement which has been applied since 1 January 2012 (the ‘PLTA’ or the ‘profit and loss transfer agreement’).

(41) The PLTA was concluded on 25 October 2012 between DB Cargo (at the time named DB Schenker Rail Deutschland AG) and its parent company (at the time DB ML, itself 100 % owned by DB AG) as part of a contract which was designated as an agreement for the control and transfer of profits (

Beherrschungs- und Gewinnabführungsvertrag)

 (15). Pursuant to the PLTA, DB Cargo’s parent company (until 2016 DB ML, and, since the latter’s absorption in 2016, DB AG) has undertaken to automatically cover DB Cargo’s losses at the end of each financial year. In turn, if DB Cargo makes profits at the end of a financial year, DB Cargo commits to automatically transfer those profits to its parent.

(42) As the PLTA was designed as

Beherrschungs- und Gewinnabführungsvertrag

it has also implications for the management of the subsidiary that was controlled (‘

beherrscht

’) by the parent company under the agreement. According to the PLTA, DB Cargo put the management of its company’s business affairs under the control of DB ML. Accordingly, the Board of Directors of DB ML was entitled to instruct the Board of Directors of DB Cargo as to the management of the company’s business affairs. However, the business management and representation remained with the Board of Directors of DB Cargo. Moreover, DB ML’s right to instruct the Board of Directors of DB Cargo excluded the possibility to instruct the Board of Directors of DB Cargo concerning amending, maintaining or terminating the PLTA.

(43) The PLTA also established a fiscal unity between DB Cargo and DB AG. This includes both a fiscal unity for income tax purposes and a fiscal unity for VAT purposes. The income tax unity linked to the PLTA allows profits and losses of different group companies to be offset against each other instead of paying income taxes for each individual subsidiary. The fiscal unity for VAT purposes derives from the PLTA establishing the control of DB ML (and later DB AG) over DB Cargo. The fiscal unity for VAT purposes results in internal flows not being subject to VAT.

(44) The PLTA was signed between DB ML as parent company and DB Cargo on 25 October 2012 (16). The PLTA was approved by the respective General Assemblies of DB ML and DB Cargo on 26 October 2012. The agreement provided for its retroactive application as of 1 January 2012 (17).

(45) At the time the PLTA was signed between DB ML and DB Cargo, there was also a profit and loss transfer agreement in force between DB AG and DB ML (18). Pursuant to that agreement, DB AG undertook to automatically cover DB ML’s losses at the end of each financial year as long as the agreement was in place. In turn, DB ML committed to automatically transfer its profits to DB AG at the end of each financial year. Thus, any impact on DB ML’s financial situation due to the PLTA of 2012 between DB ML and DB Cargo could have a direct impact on the budget of DB AG. That profit and loss transfer agreement between DB AG and DB ML continued to be in force until the merger between the two companies in 2016.

(46) On 26 August 2016, as part of the merger between DB AG and DB ML, the PLTA concluded between DB ML and DB Cargo was transferred to DB AG. DB AG, as the new parent company, entered into the rights and obligations of DB ML regarding DB Cargo. At the same time, the profit and loss transfer agreement concluded in 2003 between DB AG and DB ML became devoid of purpose.

(47) Germany submits that a chain of PLTAs (with different levels of sub-holdings) was always in place in the period between 31 December 1999 and the transfer of the PLTA in 2016 from DB ML to DB AG that had DB Cargo as the ultimately affected subsidiary and DB AG as the ultimately affected parent. Between 1 June 1999 and 31 December 1999, a direct PLTA between DB AG and DB Cargo was in place.

(48) According to its terms, the PLTA had an initial duration of five years (i.e. from 1 January 2012 until 31 December 2016), during which it could only be terminated for important reasons (‘

wichtige Gründe

’). The PLTA provides that DB ML is in particular entitled to terminate it for important reasons in case that it ceases to hold the majority of voting rights in DB Cargo.

(49) Germany further explains that the German tax authorities take the view that only very exceptional circumstances can justify extraordinary termination of a PLTA during the minimum five-year-term. In this regard, Germany refers to the German tax authorities’ corporate tax guidelines (‘

Körperschaftsteuerrichtlinien

’ – KStR), which state that if a PLTA, which has not yet been in force for five consecutive years, is terminated by notice of termination or by mutual agreement, the agreement remains effective for the years for which it has been implemented for tax purposes if the termination is based on important reasons. Important reasons may be deemed to exist in particular in the event of a sale or contribution of the participation by the parent company, a merger, demerger or liquidation of the parent company or the subsidiary company. If it was already clear at the time of the conclusion of the agreement that the PLTA would be terminated before the end of the first five years, important reasons are not to be assumed. If important reasons do not exist, the PLTA is to be regarded as ineffective under tax law from the outset (19).

(50) According to Germany, based on the German tax authorities’ guidelines, only such transactions which are comparable to a sale or any other fundamental restructuring measures which leads to a change in ownership and/or control would have justified an early termination. There were no comparable trigger events during the initial five-year-minimum period, which would have justified the termination of the PLTA. The only changes of the corporate structure which took place during the period from 1999 until today only involved internal reorganisation measures and clearly did not qualify as important reasons.

(51) The PLTA further provides that, following the initial five-year duration, it is automatically prolonged at the end of each financial year for one additional year, unless one of the two parties decide to terminate it. For the termination of the PLTA, the respective party needs to give a three-month notice, i.e. for the termination to take effect in the following financial year of DB Cargo, the party must give notice of the termination of the PLTA at least three months before the end of DB Cargo’s current financial year.

(52) At the moment of the adoption of the Opening Decision, the PLTA was still in force and its termination was not envisaged. However, in the course of the formal investigation procedure, Germany informed the Commission that the PLTA between DB AG and DB Cargo has been terminated with effect as of the end of 2024.

(53) Since the current PLTA has entered into force, no profits have been transferred from DB Cargo to DB AG (or before 2016, to DB ML). Based on the PLTA concluded in 2012, the losses of DB Cargo have been covered by its parent (DB ML and subsequently DB AG). As all losses generated have been transferred, DB Cargo has been shielded from having its losses affect its balance sheet, and hence from any negative financial impact of the accumulated losses. Table 4 shows the development of DB Cargo’s subscribed capital and total equity and its generated annual losses, according to DB Cargo’s annual financial statement (20), up until 31 December 2023.

Table 4

DB Cargo’s equity and annual losses (EBT) covered by parent company based on the 2012 PLTA until 31 December 2023

(54) The basis for DB Cargo’s corporate management is mid-term strategic plans of DB Cargo (‘mid-term plans’). Every year, those mid-term plans are finalised in October and presented to DB Cargo’s Supervisory Board for approval around November/December. The mid-term plans of DB Cargo are coordinated annually with DB AG and become part of the group-wide mid-term planning. In addition, the measures and concepts included in the mid-term plans are also included in DB AG's decision-making process (unless the strategies have already been coordinated separately with DB AG).

(55) According to Germany, the preparation of the annual mid-term plans of DB Cargo is subject to an extensive process lasting several months in which the strategy and controlling departments of DB Cargo and DB AG are involved. Volume and price planning is based on analyses by official statistics and established economic forecasting institutes (e.g. Oxford Economics, Eurostat, National Statistical Offices) of economic market and competitive developments. Such statistics are taken together with internal data, the data produced by the official statistics and economic forecasting institutes is compiled by the strategy departments of DB Cargo and DB AG to produce transport market forecasts for freight transport. The assumptions for cost development of domestic entities are centrally regulated for all business units of DB AG and are based on the above-mentioned independent data sources. Key cost categories include, e.g. wages/salaries, fuel/energy and track access charges. In addition, effects from ongoing strategy and efficiency programmes are taken into account. Furthermore, detailed investment and project planning is carried out by DB Cargo's asset management in order to be able to meet the volume planning operationally.

(56) The mid-term plans concern a five-year planning horizon, for example the mid-term plan presented to DB Cargo’s Supervisory Board on 9 December 2016 concerned the planning period 2017 to 2021. The mid-term plans are around 40 pages up to 159 pages (the mid-term plan of 2015 which includes a rather comprehensive section on the ‘Zukunft Bahn’ project). For each year, the mid-term plans contain (inter alia) performance and financial projections for the following five years. For DB Cargo group, as well as DB Cargo, those plans contain income statement and balance sheet data. For other subsidiaries, selected indicators are included. The main profitability indicators used are Earnings Before Interest and Taxes (EBIT)-margin and Return on Capital Employed (ROCE) for which also target levels are set out (23). All the mid-term plans produced during the period under investigation forecast profits before tax at the end of the planning period as a minimum. Table 5 shows Operating income after interest (24), EBIT-margin, and ROCE for all mid-term plans (25) produced between 2011 and 2021. The figures shown in Table 5 concern DB Cargo AG.

Table 5

Mid-term plans 2011 to 2021

(57) Besides the financial planning, the mid-term plans include extensive analyses of current and envisaged market developments including their impact on performance, and, from 2016 onward, a description and assessment of strategies and measures taken to improve DB Cargo’s performance, including a description and assessment of measures to be taken within DB Cargo in the context of DB group-wide restructuring initiatives such as ‘

Zukunft Bahn

’ or ‘

Starke Schiene

’ (strong rail, with ‘Starke Cargo’ – strong cargo as the DB Cargo-specific complementary initiative). Moreover, comparisons of previous mid-term plans with explanations for deviations from previous planning are also included in the plans.

(58) Furthermore, since the mid-term plan 2015, the plans also include a forecast of risks and opportunities, which may impact EBIT and that have a materialisation likelihood of above 40 %, but which are not included in the baseline scenario of the planning. In the plans of the years 2017, 2019, and 2020 only additional risks in that category had been identified. Additional opportunities were not identified. Those additional risks can be significant as is clear in the plan of 2020 for the period 2021 to 2025, as shown in Figure 3: Risks and opportunities mid-term plan for 2021-2025 (31).

Figure 3

Risks and opportunities mid-term plan for 2021-2025

[Bild bitte in Originalquelle ansehen]

Source:

mid-term plan 2020 submitted by Germany

 (32).

(59) In addition to the mid-term plans, occasion-related documents concerning business strategies are also produced on a non-regular basis for example for extraordinary Supervisory Board meetings of DB Cargo, such as the meeting of January 2017 concerning the Zukunft Bahn project and DB Cargo’s strategies discussed therein (33). For specialised ad-hoc analyses and market reports in the freight transport market, specialised external providers such as SCI Verkehr are used. Detailed traffic reports are prepared by internal departments.

(60) According to Germany, in the period from 2012 to around 2019, the single-wagon load (SWL) segment was the main driver of DB Cargo’s losses. From 2019/2020 onwards, it is no longer possible to discern a clear separation of those effects, contrary to what had been the case in the prior period. Table 6 shows that none of the segments (SWL, block train (BT), combined transport (CT)) could achieve profitability in that period which was marked by the COVID-19 pandemic. Nevertheless, the losses in the SWL segment, which made about 30 % of DB Cargo’s turnover in the period 2020-2022, accounted for more than half of the entire losses in the same period.

Table 6

Segmentation of EBIT 2012-2022

(61) In 2019, DB AG commissioned a study by Oliver Wyman, SCI Verkehr and CK Rail&Logistics concerning the SWL sector (Studie ‘

Strategischer Review des Einzelwagenverkehrs

’ – Strategic review of Single Wagon Load; ‘the SWL-study’). The SWL-study was dated October 2019 and was slightly amended in January 2020 without any impact on the conclusion of the study. It included a description and assessment of the SWL market as a whole in Germany and in Europe, a description and assessment of the SWL segment of DB Cargo, as well as possible ways forward for the SWL segment of DB Cargo.

(62) The alternative ways forward identified in the SWL-study were the following:

(1) Further development of the segment with additional relief and State support: The SWL segment would be further developed with a targeted optimisation of the business model and a growth and innovation programme. Transport performance and area coverage would be increased. The operation of the SWL would need to be supported by targeted relief. Investments in modernisation and thus in the long-term increase in efficiency would be promoted.

(2) Further development without additional State support: The SWL segment would be developed in such a way that it supports the shift of freight traffic from road to rail. A similar optimisation of the business model (as in the further development with relief and State support option) as well as a growth and innovation programme would be implemented. However, due to limited investment capacity due to a lack of government support, investments in innovations and growth would be addressed selectively and deferred.

(3) Focusing on core customers: In this scenario, the SWL segment would be downsized to focus on an economic core. The aim of the focusing approach was to align the offer to ‘anchor customers’ (34) with large and stable traffic. Freight transport stations that could not be operated cost-effectively (‘

eigenwirtschaftlich

’) would be reviewed together with customers, with the aim of achieving cost-covering pricing. If a cost-covering solution could not be found with the customers, service to the freight transport station would be discontinued. Only freight transport stations with a wagon volume of one or more wagons per working day would be regularly served at no extra charge.

(4) Closing down the segment: this scenario concerns an orderly exit from SWL.

(63) The SWL-study considered the following contributions of the SWL segment to DB Cargo’s earnings in 2023 and 2030 under the four considered scenarios:

Table 7

Contribution of each scenario to DB Cargo’s earnings in 2023 and 2030

(64) The four scenarios were assessed by using six criteria:

(1) Benefits to the national economy (‘

volkswirtschaftlicher Nutzen

’): assesses the impact on Germany as industrial location;

(2) Ecological benefits (‘

ökologischer Nutzen

’): assesses the impact on the sustainability of freight transport in Germany;

(3) Strategic positioning of DB Cargo (‘

Strategische Positionierung DB Cargo

’): assesses the impact on DB Cargo’s business model;

(4) DB Cargo’s finances (‘

Finanzen DB Cargo

’): assesses the impact on DB Cargo’s finances by use of key performance indicators. The focus is on the earnings effect of the SWL segment for DB Cargo and the extent to which the earnings gap can be closed;

(5) DB Cargo’s personnel (‘

Personal DB Cargo

’): assesses the impact on the employment situation. It takes into account a ‘special responsibility’, as a State-owned company, for over 17 000 employees in Germany in 2018;

(6) Domestic and European rail system (‘

Nationales & Europäisches Bahnsystem

’): An indicator for assessing the impact on the European rail system is the share of cross-border transport in the SWL segment. Furthermore, it is assessed how flexibly the resulting network can be scaled in Germany and Europe in order to respond to changing market dynamics.

(65) According to those criteria, the SWL-study ranked the scenario of further developing the SWL segment with additional relief and State support as the most advantageous scenario in general, while focussing on anchor customers would have the largest positive effect on DB Cargo’s finances. Figure 4 shows the conclusion matrix as depicted in the SWL-study.

Figure 4

Concluding assessment of SWL scenarios

[Bild bitte in Originalquelle ansehen]

Source:

SWL-study as submitted by Germany

 (35).

(66) In 2020, DB Cargo installed a new management team as well as a new business strategy (‘Strong Cargo’ –

‘Starke Cargo’

). The SWL-study’s conclusions were not directly implemented into DB Cargo’s overall business strategy but formed an important basis for creating the ‘Starke Cargo’ strategy. The new business strategy was in essence a growth strategy and envisioned a strategy for the SWL segment which had parallels with the ‘further development of the segment with additional relief and State support’ option of the SWL-study. This was based on two grounds: (i) the expectation of State support due to the political will to further enhance a modal shift from road to rail; (ii) the risks of negative network effects in a downsizing scenario were considered high. According to the mid-term plan of 2020, the SWL segment would still remain operationally loss-making (in terms of EBIT) for the long-term (see Figure 5).

Figure 5

DB Cargo indicators mid-term plan 2020 by business segment

[Bild bitte in Originalquelle ansehen]

Source:

mid-term plan 2020 as submitted by Germany

 (36).

(67) At the time of the implementation of the ‘Starke Cargo’ strategy, the State support ‘

Trassenkostenentlastung

’ (reduction of track access charges) with a volume of EUR 350 million per year for the sector as a whole was already in effect as of 1 July 2018 until 30 June 2023 (later, it was further extended beyond 2023) (37). Furthermore, as of the mid-term plan 2020, DB Cargo additionally anticipated State support ‘

Anlagenpreisförderung

’ (support of train composition) with a volume of EUR 200 million in total from 2021 to 2025 (actual introduction in 2020 by the Federal Ministry for Digital and Transport) (38).

(68) In the same vein as the mid-term plan 2020, the mid-term plans 2021 and 2022 also include State aid to DB Cargo’s SWL segment as shown in Figure 6: mid-term plan 2020 SWL State support.

(69) However, the plans 2021 and 2022 do not only include support for train composition (‘

Anlagenpreisförderung

’ – APS) but additional support for the SWL. In that regard, the mid-term plan 2022 mentions the need for an additional EUR 198 million beyond the EUR 102 million included in the federal budget.

Figure 6

Mid-term plan 2020 SWL State support

[Bild bitte in Originalquelle ansehen]

Source:

DB Cargo mid-term plan 2020 as submitted by Germany

 (39).

Figure 7

Mid-term plan 2021 SWL State support

[Bild bitte in Originalquelle ansehen]

Source:

DB Cargo mid-term plan 2021 as submitted by Germany

 (40).

Figure 8

Mid-term plan 2022 SWL State support

[Bild bitte in Originalquelle ansehen]

Source:

DB Cargo mid-term plan 2022 as submitted by Germany

 (41).

2.3.2.   

Pricing of intra-group services (‘Measure 2’)

(70) DB AG provides various services and support functions to the companies of the DB group, including DB Cargo, on the basis of intra-group agreements.

(71) The Commission identified the following intra-group services provided to DB Cargo: (i) analytics (big data analysis, forecasts, traffic models); (ii) accounting; (iii) real estate; (iv) IT services; (v) personnel service; (vi) training (recital 26 of the Opening Decision).

(72) The costs of the intra-group services are charged to DB Cargo on the basis of intra-group agreements. However, the Commission’s understanding in the Opening Decision was that the intra-group services provided to DB Cargo might not be limited to the intra-group services identified in recital 71: according to information published by DB AG (see for example the DB AG integrated report of 2016 (42)), the cost for some of those services, such as marketing, human resources, communication and legal affairs services, were not transferred to DB Cargo but were borne by DB AG (recitals 27 and 28 of the Opening Decision).

2.3.3.   

Advantageous financing conditions of loans by DB Treasury (‘Measure 3’)

(73) DB Cargo is granted short- and long-term loans by DB Treasury. DB Treasury is the unit within DB AG responsible for the management of cash and the financing of the group.

(74) Intra-group loans in favour of 100 %-owned subsidiaries of DB AG, such as DB Cargo, are not collateralised, given that DB AG, as the only shareholder of DB Cargo, operates both as an equity provider and as a lender. Consequently, DB Cargo has been able to sign loans without using its assets as collateral.

(75) Germany also acknowledged the existence of short-term loans, and confirmed that, since 2013, the following outstanding long-term loans had been granted to DB Cargo by DB Treasury:

Table 8

Outstanding long-term loans (situation at 24 June 2020)

2.3.4.   

Partial coverage by BEV of the remuneration of civil servants employed by DB Cargo (‘Measure 4’)

(76) Measure 4 concerns the partial coverage by the State of the of the remuneration of railway officials (i.e. public officials who had formerly been working for the national railway company, Deutsche Bundesbahn, before it was converted into a commercial company and became DB AG) that are provided to DB Cargo’s workforce from BEV.

(77) As part of the liberalisation process of the German railway sector (43), which involved the transformation of the German national railways into a company incorporated as

Aktiengesellschaften

as of 1994 (see recitals 11 and 15), Germany founded and financed from its own resources a Federal Railway Fund (

Bundeseisenbahnvermögen

, ‘BEV’). One of the Fund’s objectives was to take over the railway officials formerly employed by Deutsche Bundesbahn and support their allocation to the workforce of DB AG (and,

in fine

, to subsidiaries of the DB group such as DB Cargo), to the extent that they were not assigned elsewhere. BEV is a formal employer of railway officials, it is also responsible for handling the pensions of the retired officials and manages the railway officials’ health insurance fund. Given that, as a matter of law, State officials cannot be assigned to work in a private undertaking without a specific legal basis, the allocation of railway officials by BEV was enabled by the introduction, to the Grundgesetz für die Bundesrepublik Deutschland (Basic Law for the Federal Republic of Germany), of Article 143(a)(1), which created a legal basis for the assignment system. It is also established that BEV has been assigning railway officials to private undertakings, such as DB AG’s competitors, and to some State agencies. These assignments, of limited scale, are based exclusively on § 29 of the Bundesbeamtengesetz (Federal Civil Servants Act, ‘BBG’) (44) which requires consent of the relevant official.

(78) The transformation process of German railways was organised by an act on the founding of Deutsche Bahn AG (

Deutsche Bahn Gründungsgesetz

‘DBGrG’) which, among other issues, sets out the relationships between BEV and DB AG. The rule of allocation of railway officials from BEV to DB AG is laid down in §12 DBGrG. Pursuant to §12(3) and (3) DBGrG, railway officials assigned to DB AG maintain their legal status of civil servants. §12 DBGrG is supplemented by §§21 and 23 of DBGrG which create an obligation for DB AG to reimburse BEV the costs of the allocated workers pursuant to the ‘als-ob-Kosten-Prinzip’’ (‘costs, as if principle’). In accordance with §21(1) DBGrG, DB AG ‘makes payments to BEV for the officials assigned to it in accordance with §12(2) and (3) DBGrG in an amount equal to the expenditure which it incurs or is required to pay for the work of comparable workers to be newly hired by the company, including the employers shares in statutory social security and additional occupational pension services’ (45).

(79) An agreement concluded between BEV and DB AG on the basis of § 21(8) DBGrG regulates the details of the reimbursements system. The costs to be reimbursed are calculated separately for each individual official, added together and reimbursed to BEV on a monthly basis. DB AG pays also to BEV pro rata staff administration costs. Under § 13 DBGrG, BEV has the power to check the correctness of the classification of railway officials assigned in the relevant pay group which determines greatly the personnel costs to be reimbursed. In addition, the annual statement for reimbursement of staff costs is drawn up and certified by an independent auditor.

(80) The allocation is made to DB AG as a group and not to one of its subsidiaries. Accordingly, the reimbursement of staff costs for officials assigned to DB AG is made by DB AG to the BEV. There is no direct payment of staff costs from DB Cargo to BEV.

(81) In situations where BEV assigns railway officials to private undertakings other than DB AG, BEV concludes an agreement with the relevant railway undertaking for the reimbursement of the costs of hiring out staff. The provisions of such agreements correspond to the provisions of § 21 DBGrG, establishing the ‘als-ob-Kosten’ principle.

(82) Measure 4 only concerns the pool of railway officials existing at the time of transformation of Deutsche Bundesbahn in 1994; no new railway official has been employed since 1993. Measure 4 thus concerns a steadily decreasing group of officials, which shrinks rapidly given the age structure of that group (more than 60 % of the workers concerned will retire before 2032). As of 2023, the measure only concerned around 8 % of DB Cargo’s total workforce.

2.4.   

Grounds for initiating the procedure

(83) According to the Commission’s preliminary assessment presented in the Opening Decision, the four measures investigated constituted State aid within the meaning of Article 107(1) TFEU.

(84) With regard to the

PLTA

, considering its duration and absence of any ceiling as to the loss-coverage of that agreement and the continuous losses ever since the PLTA was concluded, the Commission raised doubts as to whether the continued coverage by DB ML and DB AG of DB Cargo’s repeated losses without having assessed whether to terminate the PLTA so as to save the remaining part of the capital, could have involved an undue and selective advantage to DB Cargo within the meaning of Article 107(1) TFEU. Given that doubt, the Commission sought further clarification of the legal setting and corporate structure, as well as the contractual arrangements within the DB AG group by which the parent company absorbs over the years the losses of DB Cargo. Further, the Commission noted that the PLTA was imputable to the German State mainly based on the full ownership of DB Cargo and its parent company DB AG by the German State, involving a possibility of appointing members of the Supervisory Boards of those entities, as well as on the statutory requirement of a formal approval of a profit and loss transfer agreement by the shareholder. The Commission acknowledged that DB AG and DB Cargo are incorporated as

Aktiengesellschaften

under private law which means that the General Assemblies of those companies cannot in principle issue instructions to their Board of Directors. The Commission also acknowledged that the Supervisory Board of DB AG was not composed of a majority of government representatives. However, in the context of the present case, taking into account the strategic importance of the rail freight business to the Federal’s government transport policy, the Commission could not exclude that the State, through its presence in the Supervisory Board of DB AG, could have indirectly influenced the decisions of the Board of Directors.

(85) With regard to the

pricing of intra-group services

, the Commission noted in particular that, according to information published by DB AG, intra-group services to DB Cargo were provided free of charge or below market prices and that Germany had not provided any analysis or data to support its claim that those services were provided at arm’s length basis. The Commission observed that, in the absence of sufficient elements demonstrating that the intra-group services provided to DB Cargo on the basis of agreements with DB AG were in line with normal market conditions, it could not be excluded that those services were a source of an advantage to DB Cargo within the meaning of Article 107(1) TFEU. The Commission invited Germany to provide further information and evidence about the intra-group services provided to DB Cargo, in particular as regards the terms and conditions of the agreements providing services to DB Cargo, their cost basis and other market pricing-related information. Further, the Commission could not exclude that Measure 2 was imputable to the German State. In that regard, the Commission took into account the full ownership of DB Cargo and its parent company DB AG by the German State involving a possibility to take all decisions in the General Assembly of DB AG on its own and the fact that the decision of DB AG to provide intra-group services to its subsidiaries could have a considerable impact on DB AG’s budget and thus on the shareholder’s interests.

(86) With regard to the

financing conditions of loans granted by DB Treasury,

the Commission noted in particular that Germany had not provided evidence to support its claim that those conditions were in line with market conditions and complied with the arm’s length principle. The Commission further noted that Germany’s claim did not take into account the fact that DB Cargo enjoyed better credit ratings due to the existence of the PLTA in place, whereas, in line with the relevant Union sectoral legislation, loans between legal entities of a vertically integrated undertaking may only be granted taking into account the individual risk profile of the entity concerned. In addition, the Commission took into account the absence of any collateral provided by DB Cargo for all outstanding long-term loans.

(87) Based on those elements, the Commission found that it could not be excluded that DB Cargo potentially received an advantage within the meaning of Article 107(1) TFEU in the form of financing conditions from DB’s Treasury that were not in line with market conditions. The Commission invited Germany and interested parties to provide further information and evidence to establish whether the loans granted by DB Treasury to DB Cargo are in line with market terms. Furthermore, the Commission could not exclude that Measure 3 was imputable to the German State. In that regard, the Commission took into account the full ownership of DB Cargo and its parent company DB AG by the German State. The Commission preliminarily considered that the organisation of the treasury services and the pricing conditions could have a considerable impact on DB AG’s budget. Thus, it could not be excluded that the decision on how to provide financing to subsidiaries, and under which conditions, was of fundamental importance to the DB group’s highest management level, and also to its shareholder, the German State.

(88) With regard to the partial coverage by BEV of the remuneration of civil servants, the Commission noted that Germany did not provide evidence showing that the costs for the employment of the civil servants borne by DB Cargo actually corresponded to market prices for similarly qualified staff. The Commission could therefore not exclude the possibility that the fact that BEV covers certain costs for staff employed by DB Cargo constitutes an advantage for DB Cargo. The Commission invited Germany and interested parties to provide further information and evidence regarding the existence of a selective advantage in relation to Measure 4. Furthermore, with regard to the imputability of Measure 4 to the State, the Commission observed that the decision regarding the entity bearing the costs for the remuneration of civil servants which are assigned to DB AG was based on a statutory provision of the DBGrG, which the Federal Parliament approved, and was therefore imputable to the State.

(89) According to the Commission’s preliminary assessment, the four measures under examination involved the resources of Germany because of its full ownership of DB Cargo, via DB AG and due to the public funding of BEV. The Commission also preliminarily considered that all measures concerned were liable to improve the competitive position of DB Cargo and therefore liable to distort competition and affect trade between Member States.

(90) With regard to compatibility with the internal market, the Commission had not identified any basis for compatibility of the measures concerned and noted that Germany had not put forward any arguments to support a finding of compatibility for them. The Commission invited Germany and interested parties to provide views and evidence on possible compatibility of the measures concerned.

3.   

COMMENTS FROM INTERESTED PARTIES

3.1.   

ERFA

(91) In its submission of 19 September 2022, ERFA explains that European rail freight transport is highly competitive and that, in recent years, private competitors have steadily expanded their market share in Europe up to 48 % in 2020. According to ERFA, they are likely to develop it further in the future. ERFA submits that it supports the Commission in its goal to ensure that competition in the rail freight market is not disrupted by State aid. In that regard, ERFA submits that losses which are automatically taken over by holding companies should qualify as State aid. ERFA underlines the importance of a clear governance structure of State-owned railway undertakings and submits that the long-lasting losses of DB Cargo over the past years, which have been covered systematically by DB AG, give the impression that the governance structure in this case is not clear. According to ERFA, any uncertainty in this regard removes the need for State-owned railway undertakings to operate under normal market conditions, thereby distorting competition. In addition, ERFA calls for transparency of services costs in cases when a State-owned railway undertaking receives intracompany services from the holding or sister company or when it receives any financing from a holding company. ERFA essentially submits that any financing provided must be reflective of normal market conditions for accessing financing to avoid cross-subsidisation, which would discriminate against competitors.

(92) ERFA also submits that legitimate aid, such as aid for SWL traffic or intermodal transport, must not be used as a means of financing struggling State-owned companies. ERFA also submits that such State aid intended to boost a modal shift must be reflective of the actual operational costs of the service and be limited in scope so it is not in direct competition with other market segments such as block train traffic. ERFA submits that such State aid must not be used to dump price to take over the market of new entrants, either. ERFA submits that State-owned companies that are in receipt of public support for certain operations, such as SWL, should ensure separation of accounts and organisation from other operations – especially those operating competitively with private and independent operators. ERFA submits that excessive State aid for operations which State-owned railway undertakings dominate, such as SWL, distorts competition.

3.2.   

The complainant

(93) In its submission of 19 September 2022, the complainant welcomes the Commission’s preliminary assessment that the four measures concerned could constitute State aid and that there would be a doubt as to their compatibility. The complainant regrets that Germany has not effectively suspended the implementation of those measures as required by the settled case-law.

(94) The complainant submits that all the measures concerned, listed in recital 14 of the Opening Decision are State aid.

(95) First, the complainant submits that all the measures concerned involve State resources. In particular, the complaint submits, with regard to Measures 1, 2 and 3, that Germany is the sole owner of DB AG and controls the votes attached to the shares and therefore DB AG must be regarded as a public undertaking within the meaning of Commission Directive 2006/111/EC (46). As the sole shareholder, Germany is capable of directing the use of DB AG’s resources, which is sufficient to qualify them as State resources. In addition, the complainant submits that the fact that these measures would be funded by business profits generated within the DB group, as alleged by Germany is unproven and, in any case, irrelevant. With regard to Measure 4, the complainant submits that that measure is financed by BEV which is a State entity and whose resources are State resources.

(96) Secondly, the complainant submits that the measures concerned are imputable to the German State. The complainant notes that DB AG is a public undertaking and that a measure is imputable to the State where the public authorities can be regarded as having been involved, in one way or another, in adopting the measure. The complainant recalls that the imputability of a particular measure may be inferred from a set of indicators arising from the circumstances of the case and the context in which the measure was taken, including indicators which show that it is unlikely that public authorities were not involved in the adoption of the measure. The complainant further submits:

(a) with regard to Measure 1, that the German State has specifically encouraged DB AG to adopt the PLTA as it had approved it, in its capacity as sole shareholder of DB AG. There is direct evidence of the State’s involvement in that decision. The PLTA could not have effect without the approval of the shareholder of DB AG. The fact that, as argued by Germany, its approval would be merely formal is not relevant in light of the case-law (47). Regardless of how the power of the State as a shareholder may be exercised, the German government could have blocked the adoption of the PLTA if it had not suited it. In addition, the profit and loss transfer occurs on a yearly basis and is approved by the Supervisory Board of DB AG, representing for its majority the State’s shareholding;

(b) with regard to Measures 2 and 3, the complainant observes that, while those measures were not adopted directly by the State, as was the PLTA, there is a set of indicators arising from the circumstances of the case and the context in which those measures were taken, showing the State involvement or unlikelihood of it not being involved. Those indicators, which are also relevant for the assessment of the imputability of Measure 1 are the following:

(1) contrary to its allegations, Germany controls DB Cargo and other companies belonging to DB group. This control stems from the total ownership of DB Cargo and is enhanced by the profit and loss transfer agreement in place between DB Cargo and DB AG whereby the first subordinates the management of its company to the latter. It is also confirmed by the statutory obligation for the German State to exercise an appropriate degree of influence over the companies in which it has holdings, including indirectly, if the holding is of particular political or financial significance for Germany (48);

(2) contrary to its allegations, Germany controls the activities of DB AG, as the State designates half of the members of DB AG’s Supervisory Board which in turn appoints the Board of Directors, creating a chain of influence reflecting the 100 % shareholding of the State and its dominant influence. The members of the Supervisory Board are exempted from the general confidentiality duty, applicable in stock corporations, in the reports they submit to the State (49) and must take account of Germany’s special interests in their duties (50);

(3) Germany’s allegations that Measures 2 and 3 are business management decisions, not involving DB AG’s shareholder (neither directly via the General Assembly nor via the Supervisory Board) are not credible, given their potential financial impact on DB AG’s budget. Indeed, in line with the provisions of PCGK (51) transactions of fundamental importance and other Management Board decisions with a major impact on the business operations and on the assets, financial or income situation of the company require the authorisation of the Supervisory Board;

(4) the interest of German State to receive dividends from DB Group indicates that the State must have been involved in Measures 2 and 3;

(5) contrary to Germany’s allegations, DB AG is not merely a private law company benefitting from highest degree of freedom and independence from its shareholders. To the contrary, under relevant provisions of BHO and PCGK the State is under a duty to actively exercise its influence over DB AG to ensure the public interest. In addition, PCGK puts on companies in which the German State has a holding several specific obligations which go beyond what could be expected from a private company (including acting in a responsible and ethically sound way, using the company’s resources economically and sustainably, respecting Union State aid law). Finally, DB AG benefits from a continuous and unconditional State support and therefore does not exercise its activities in normal conditions of competition with private operators, which is an additional indication of State influence.

(c) With regard to Measure 4, the complainant submits that it stems from statutory provisions of DBGrG and is therefore imputable to the State.

(97) Thirdly, the complainant submits that the measures concerned confer an economic advantage on DB Cargo. The complainant submits in particular:

(a) with regard to Measure 1, that Germany did not provide any relevant information or evidence demonstrating that it has acted in its capacity as shareholder of DB AG rather than in its capacity as public authority and that, in consequence, the market economy operator (‘MEO’) test is not applicable. Should the Commission find that the test is applicable, the complainant submits that there are not enough elements showing that a private operator, in a situation as close as possible to DB AG’s would effectively enter into a PLTA with a subsidiary such as DB Cargo and under the applicable conditions. In that regard, the complainant points to the continuous losses incurred by DB Cargo under the PLTA in force between 1999 and 2012 and to the fact that, notwithstanding those losses, a new PLTA which was an unconditional agreement not limited in scope nor in amount was concluded in 2012 and then renewed automatically in 2016 and in 2018. The complainant further notes that, on the basis of the market data available in 2012 and given the yearly loss coverage, there was no perspective of making profit. Finally, the complainant points to the fact that the PLTA was adopted and maintained in force although Germany had the necessary margin of discretion not to enter into such agreement in the first place and to terminate it at any time. In addition, the complainant notes that, by claiming, in the context of Measure 3, that DB AG and DB Cargo have the same credit rating thanks to the existence of the PLTA, Germany recognised the positive effect of the PLTA on DB Cargo’s rating and thus acknowledged that the PLTA confers an advantage on DB Cargo;

(b) with regard to Measure 2, that Germany’s claim that intra-group services are provided at arm’s length is not supported by any economic analysis and in fact is contradicted by officially published information;

(c) with regard to Measure 3, that Germany’s claim that loans granted by DB Treasury to DB Cargo are based on normal market conditions is not supported by any evidence. That claim is in fact contradicted by publicly available DB AG integrated reports from which it follows that loans concerned were not intended to yield any profit to DB AG. In addition, thanks to the existence of the PLTA, DB Cargo is assigned to the same credit quality groups by rating agencies and thus it benefits from an inflated credit rating;

(d) with regard to Measure 4, that the additional costs for DB Cargo to employ civil servants compared to the costs of private sector employees do not constitute an abnormal charge upon DB Cargo that could be compensated by the State without amounting to State aid. Such additional costs do not constitute the compensation of the costs of a previous derogation from the general system (dual derogation) nor does the measure amount to the compensation of an SGEI in conformity with the

Altmark

criteria. BEV’s interventions confers thus an advantage on DB Cargo.

4.   

COMMENTS FROM GERMANY

4.1.   

General preliminary observations

(98) Germany submits that the Commission did not discharge its burden of proof relating to the demonstration of the existence of aid and did not clearly identify doubts as to the compatibility of the four measures concerned with the internal market.

(99) Germany further indicates that the competitive dynamics on the German rail freight market is enough to invalidate the complainant’s claim that the market is characterised by distortions of competition resulting from alleged State intervention in favour of DB Cargo. Germany points in particular to the fact that DB Cargo’s competitors have steadily increased their market share in Germany going from 29 % in 2012 up to 57 % in 2022. In contrast, in other Member States, the market share of challengers is much lower: 54 % in Italy, 51 % in Sweden, 50 % in Poland, 32 % in Austria, 31 % in Switzerland and 30 % in Belgium (52).

(100) Germany indicates that it seeks to increase the market share of rail in overall transport of goods, in particular with a view to the decarbonisation of transport. In this regard, several horizontal support measures for rail freight undertakings were put in place. According to Germany, the opening of the formal proceedings creates uncertainly for the whole rail freight sector undermining the objectives of the decarbonisation and green transition.

4.1.1.   

Observations on the measures concerned

(101) Germany submits that none of the measures enumerated in the Opening Decision constitutes State aid within the meaning of Article 107(1) TFEU.

(102) Concerning measures 1 to 3, Germany submits that the assessment in the Opening Decision is not in line with the concept of a single economic unit.

(103) Germany argues that all companies belonging to a group are to be treated as one undertaking for the purposes of the application of EU competition rules (53). Where a parent company (in this case, DB AG) exercises control over its wholly-owned subsidiaries (in this case, DB Cargo) (54), the entire group must be classified as an economic unit and thus as one undertaking within the meaning of Article 107(1) TFEU (55). In this regard, Germany refers also to the exemption of agreements restricting competition between parent companies and subsidiaries from the application of Articles 101 and 102 TFEU (56). Moreover, Germany refers to the definition of linked undertakings in the first subparagraph of Article 3(3) of Annex I to Commission Regulation (EU) No 651/2014 (57) and Article 2(2) and recital 4 of Commission Regulation (EU) No 1407/2013 (58).

(104) Moreover, Germany argues that no precedents support the Commission’s approach to examining purely intra-group transactions under State aid law and that unlawful cross-subsidisation within integrated railway undertakings is effectively excluded by the Union’s sectoral regulatory requirements (in particular Directives 2012/34/EU (59) and (EU) 2016/2370 (60)) and their transposition into national law.

(105) Furthermore, Germany submits that the Commission’s argument is contrary to the principle of neutrality laid down in Article 345 TFEU. This is because private undertakings are free to design their intra-group performance relationships and do not have to respect the limits set out in the Opening Decision. If, in future, the Commission were to assess all intra-group agreements and transactions (only) in the case of public undertakings in the light of State aid law and – as happened in the present case – subject to a general suspicion and obligation to justify, this would constitute a serious disadvantage for undertakings in public ownership.

4.1.1.1.   Compensation of annual losses of DB Cargo under the profit and loss transfer agreement (Measure 1)

(106) Germany submits that no State resources are involved in Measure 1, since the losses of DB Cargo are covered by business profits generated within the DB group. For private funds, such as business profits of DB group, to be qualified as State resources it is necessary to demonstrate that these funds are continuously under public control and thus at the disposal of the competent national authorities (61). In this regard, Germany also referred to the Court’s judgment (62) concerning Commission Decision (EU) 2016/1208 (63).

(107) In addition, Germany contends that the decision to cover the losses of DB Cargo is not imputable to the State, although the State took part in the conclusion of the PLTA via the respective votes in the General Assembly that allowed the conclusion of the PLTA. According to Germany, the criteria used for the determination of imputability are not met in the present case. In this regard, Germany further elaborates on its arguments described in recital 65 of the Opening Decision:

(a) DB AG is incorporated under private law in the form of a joint stock corporation (‘

Aktiengesellschaft

’), a form of business organisation that grants the management (and the Supervisory Board) freedom and independence from shareholders’ instructions (the General Assembly does not have the possibility to issue instructions to the members of the Board of Directors or the members of the Supervisory Board). Accordingly, the State does not control the management decisions of DB AG, which are taken by the Board of Directors. The Board of Directors does not include any government representatives. In addition, the Supervisory Board only counts a few government representatives among its 20 members (three members both currently and at time of signing the PLTA). Furthermore, there were no government representatives in DB Cargo’s Board of Directors either, and only two government representatives (one from the Federal Ministry for Digital and Transport and one from the Federal Ministry for Economic Affairs and Climate Action) in DB Cargo’s Supervisory Board. The sole shareholder of DB Cargo in the General Assembly was DB AG.

(b) The conclusion of such agreements, governed by the

Aktiengesetz

, is a common practice in corporate groups incorporated under private law. DB AG followed a standard practice for corporations.

(c) While Germany accepts that the representative of the Federal Government at the General Assembly of DB AG gave his consent to the conclusion of the PLTA with DB Cargo, Germany submits that this does not justify imputing the decision to the State. By approving the conclusion of the PLTA at the general assembly, the representative of the Federal Government acted solely in the role as shareholder under the AktG, in the same way as applies to private corporations (§ 293 AktG). Moreover, the State’s consent to a measure cannot in itself give rise to imputability. Otherwise, any State approval of a legal transaction would make it a ‘State’ measure. Imputability can be established only if the public authorities were proactively involved in the adoption of that measure or imposed it.

(d) According to Germany, the view that not all measures taken by a public undertaking in favour of a subsidiary are imputable to the State has been confirmed by the Commission in the case concerning

Empresa de Manutenção de Equipamento Ferroviário

(EMEF) (64). That case concerned, inter alia, capital injections, guarantees, intra-group borrowings and supply and service contracts between the Portuguese State railway Comboios de Portugal (CP) and its wholly-owned subsidiary EMEF.

(e) Moreover, imputability to the State based on the resolution of the general assembly would require the State to have been able to prevent the measure by reason of a lack of approval (65), which is not the case. Even in the absence of a PLTA, DB AG could have transferred profits and losses. Profits could be transferred to DB AG on the basis of a simple shareholder decision by DB Cargo. Losses of DB Cargo could, at any time, be compensated by DB AG with further equity injections, for example by contributing to the capital reserve. Such measures by DB AG would not involve the State but would be purely intra-group measures. This applies a fortiori to individual loss compensations on the basis of the PLTA. This is because they took place without any involvement of the State. They were automatically carried out in accordance with the legal requirements of § 302 AktG and independently of any individual decisions.

(f) The legal obligation set out in § 65(2), in conjunction with § 65 (3), of the Federal Budget Code (‘

Bundeshaushaltsordnung

’ – BHO) (see recital […]), on the basis of which the State had to agree to the conclusion of the PLTA is also no indication of imputability, as the provisions in the BHO concern a ‘change in the influence of the Federal Government’ (‘

Änderung des Einflusses des Bundes

’) and hence solely the control part of the agreement and not the part concerning the automatic transfer of profits and losses. In that context, Germany further explains that, while often combined into one agreement, as in the case of DB Cargo, control agreements and profit and loss transfer agreements are two different kinds of agreements. In any case, the requirement is not a legally binding independent State approval requirement for the State-owned undertaking, in this case DB AG.

(g) The way DB AG is supervised by the State does not amount to a degree of supervision of public authorities over DB AG that would be relevant as an indicator of imputability. None of the public authorities have administrative supervision over the management of DB AG and its subsidiaries, in particular:

(a) The activity of the Federal Railways Office (‘

Eisenbahn-Bundesamt

’ – EBA) relate to specific tasks of planning approval, vehicle approval and safety-related tasks. Moreover, the EBA’s activities covers also private railway companies.

(b) The activity of the Federal Network Agency (‘Bundesnetzagentur’ – BNetzA), as the competent regulatory authority, monitors compliance with railway regulatory requirements by both federal and non-federal railway infrastructure companies.

(c) The activities of the Federal Court of Auditors (‘Bundesrechnungshof’) relate to the Federal Government and its budgetary and economic management (including its actions in the case of shareholdings held by the Federal Government in companies established under private law).

(d) The Federal Ministry for Digital and Transport does not exercise administrative supervision over the ‘business governance’ of DB AG and its subsidiaries. The Ministry directs, and is responsible for, the work of the specialised department responsible for transport policy within the Federal Government. The Federal Government acts in its capacity as shareholder through the management of shareholdings in the Federal Ministry for Digital and Transport. This includes the exercise of the rights and obligations as a (private) shareholder.

(e) The Bundestag, as a legislative body, does not exercise administrative supervision over DB AG. Its monitoring relates to the actions of the Federal Government, as does the work of its committees.

(108) Furthermore, the ‘strategic importance’ of the rail freight business for ‘transport policy’ does not justify a finding of imputability, as the conclusion of the PLTA did not serve to implement policy objectives or to implement a law. Nor can the economic importance of the PLTA justify such a finding.

(109) Finally, not allowing DB AG as State-owned company to use an instrument that private companies also widely use would discriminate against publicly-owned companies in comparison with privately-owned companies, and it is against the principle of neutrality as enshrined in Article 345 TFEU.

(110) Moreover, Germany submits that there is no economic advantage present in the PLTA.

(111) PLTAs are a common structural element in groups. The conclusion of PLTAs and their implementation constitute normal market conduct. PLTAs are a common means of design by groups of companies, particularly private companies, in Germany to establish a

Vertragskonzern

 (66). According to Germany, PLTAs are regularly used by the companies represented in the German stock index (

Deutscher Aktienindex

DAX). The official corporate tax statistics also show that PLTAs are common and widely used in Germany. According to official statistics, groups (67) accounted for almost 50 % of total corporate tax revenue for the 2017 tax period. Moreover, Germany points to the tax effects of PLTAs (see recital 43).

(112) Furthermore, Germany reiterates that the economic effects of the PLTA could also be achieved, i.e. the transfer of profits and losses, without the PLTA.

(113) In addition, Germany refers to the annual financial planning (the mid-term plans are part of that planning) within DB group. DB AG’s expected results for the group companies are defined as part of the planning rounds. DB AG’s specific profitability expectations vis-à-vis the group companies – and thus also vis-à-vis DB Cargo – can be seen, for example, as follows:

(a) DB AG sets a return target for all new investments by the group companies above the market capital costs.

(b) The level of remuneration of the members of the Board of Directors of the group companies depends on the results of the company in question. Those results include both short-term and long-term performance.

(c) If the group companies do not meet the profitability targets expected by DB AG, DB AG can also use the possibility of replacing those in top management positions.

(d) The implementation of that strategy is made possible precisely by the control element of the PLTA.

(114) Germany also asserts that any alleged failure to terminate the PLTA does not constitute aid as a non-termination does not constitute an action and hence there is no ‘measure actually implemented’ (68). For that reason, the assessment of the aid nature of the PLTA must be based on the conclusion of the PLTA.

(115) In view of the expectations of a significant improvement in the earnings situation, Germany argues that a private shareholder acting in its long-term interest would also have accepted losses in the interim by DB Cargo. Germany points to a previous case where the Commission did not see an economic advantage for the company concerned in a case of multi-year loss compensation by its parent company on the basis of a PLTA (69).

(116) In addition, account must be taken of the fact that the DB Group had in the past injected capital into DB Cargo or received profits from DB Cargo. A private shareholder who has already invested in a company will make its risk assessment differently than an investor without an existing shareholding. The fact that the parent company has previously been economically involved in DB Cargo must therefore be taken into account in the application of the market economy operator test.

(117) Furthermore, according to Germany, a private operator would also have compensated the losses incurred by DB Cargo. This is because the forecasts of results contained in the mid-term planning have in each case made it possible to expect DB Cargo to return to profitability in the medium to long term (see recital 55). The forecasts are always based on valid and well-founded assessments of market and business developments (see recital 55). In addition, DB Cargo had made profits of more than half a billion euro in 2006, 2007 and 2008 alone and transferred them to DB AG.

(118) According to Germany, there are several reasons why the economic situation has not yet improved as expected, among others:

(a) Since 2010, market growth in the rail freight market has been significantly lower than in the previous decade, contrary to the initial expectations of DB Cargo and external experts.

(b) At the same time, market developments were significantly more volatile.

(c) In the 2010s, the freight structure effect accelerated further. As a result, clients from the industries that had traditionally been a source of profit for the rail freight transport (coal, ores, mineral oil, steel) accounted for a gradually smaller share of the product mix.

(d) As DB Cargo’s factor costs increased significantly over the same period, not least because of strong trade union wage demands.

(e) In addition to competitively induced volume losses, DB Cargo also lost or failed to obtain quantities because the production quality was not sufficient.

(119) Moreover, DB Cargo embarked on numerous programmes in recent years to achieve a sustainable improvement in profitability (some of those programmes are mentioned in recital 57).

(120) Germany further submits that the fact that the profit expectations of the mid-term plans did not materialise within the expected period or scope is, in principle, irrelevant, as the only decisive factor for the test is an

ex ante

assessment on the basis of the available information and foreseeable developments at the time when the measure in question was adopted.

(121) Concerning

ex ante

profitability analyses, Germany submits that it is unusual to prepare a profitability analysis or a business plan in relation to PLTAs. Rather, the continuous coordination processes between DB AG and DB Cargo aim at ensuring a profitable business.

(122) Moreover, Germany submits that no requirement for profitability analyses or business plans arise from the EDF case-law, since (i) the EDF case related to an injection of capital; and (ii) it concerns the question of whether the implemented measure falls to be ascribed to the State acting as shareholder (70).

(123) In addition, during the formal investigation, Germany provided two economic reports concerning the conformity of the PLTA with the conduct of a private market operator. The reports, submitted on 8 June 2023 (‘the first E.CA report’) and 28 August 2023 (‘the second E.CA report’) were produced by an independent economic advisor, E.CA Economics. Both reports took an

ex ante

perspective, even though they were prepared for the purposes of the proceedings after the time period under investigation.

(124) The first E.CA report consists of a qualitative assessment of the evidence provided by Germany during the investigation. It recounts the (i) ubiquity of PLTAs; (ii) the advantage of such agreements (control, fiscal unity); (iii) the existence of group-wide financial planning including performance targets for DB Cargo; (iv) the mid-term plans as a planning tool showing profit expectations (including a detailed description of the content of the plans); (v) examples of reasons for deviations between the planned profits and the actual incurred losses; and (vi) a reference to potential losses in a counterfactual scenario (reference is made to exit losses when discontinuing the SWL business). Overall, the report concludes that the evidence Germany provided during the investigation demonstrated that DB Cargo has acted as a market economy operator would act.

(125) The second E.CA report contains:

(a) An

ex post

quantitative assessment for the period from 2017 to the COVID-19 pandemic. The assessment is based on a counterfactual comparison from an

ex ante

perspective from 2017; comparing DB Cargo’s mid-term forecast (2018-2022) with an alternative scenario for the closure of the loss-making SWL segment. The assumptions regarding the alternative scenario are based on the SWL-study. For the test, the financial data of the 2017 mid-term plan and the exit scenario modelled in the SWL-study were converted into cash flows.

(b) For the period from the pandemic year 2020 until the development of the transformation plan (see recitals 175 et seq.), a qualitative analysis of the conformity of the behaviour of DB AG and DB Cargo (in the context of changing market conditions) with that of a comparably-situated private market operator.

(126) For the comparison of the base scenario (mid-term plan 2017) and the counterfactual (exit from the SWL segment), Free Cash Flows to the Firm (FCFF) to DB AG after tax were used. The recognised tax effects are based on the EBT result, in accordance with IFRS and are subject to the assumption that losses of 50 % can be recognised as a loss carry-forward at a tax rate of 30 %, and positive results due to the loss carry-forward with an effective tax rate of approximately 12 % in the respective financial year. Concerning the counterfactual based on the SWL-study, as the study was commissioned in 2019, the scenario had to be brought forward by two years, i.e. to 2017. Moreover, as the SWL-study was based on net earnings, the financial impact was transformed into FCFF.

(127) In order to compare the two scenarios, cash flows were discounted to 2017 using a WACC rate of 6,0 % after tax (as shown in DB’s consolidated annual report 2017) as Table 9 Comparison portrays.

Table 9

Comparison of the financial results of the base scenario and the alternative scenarios (in FCFF)

(128) Based on the result of the comparison, the report concludes that the behaviour of DB AG and DB Cargo with regard to the continuation of the SWL according to the mid-term planning and under the assumptions of the alternative scenario can be classified as being in line with that of a comparably situated private market operator. The report also includes four sensitivities (i) a variation of the timing of the trend reversal in the base scenario; (ii) a reduction of economies of scope between the SWL and other segments; (iii) reduction of anticipated price increases; and (iv) a variation in the placement period of the staff to be laid off. In none of the sensitivity scenarios would the alternative scenario be economically more advantageous than the base case.

(129) With regard to the qualitative assessment of the (post) COVID-19 pandemic period (i.e. beginning with the year 2020), the report recalls the changes to DB Cargo's management and strategy in 2020 (the growth strategy of ‘Strong Cargo’). It also recalls the failure of the strategy. Moreover, the report explains that, while in its 2021 mid-term plan DB Cargo already assumed a probability of more than 70 % for the following key risks of a (i) decline in demand associated to meet punctuality requirements; (ii) demand decline due to pandemic-related increased semiconductor shortage; and (iii) long-term effects of strikes on customer loyalty to occur, no serious strategic change of direction was initially made in 2021. However, the report argues that this behaviour was in line with what a comparably situated private market operator would have done, due to the high degree of planning uncertainty with the management reacting on the negative business development in 2022 by commissioning the transformation plan.

(130) Germany also submitted arguments concerning the reasons why DB Cargo did not downsize the SWL segment but was counting on further State aid for the SWL operations. According to Germany, the coalition agreement of the German Government (‘

Koalitionsvertrag

’) from 2018 explicitly stated the ambitions to strengthen overall the competitiveness of rail freight compared to road transport and to foster the viability of single-wagon load traffic. In addition, factual development shows that the expectation of increasing State support for SWL was justified, as Germany in 2023 decided to introduce a specific SWL State aid scheme (71).

4.1.1.2.   Pricing of intra-group services (‘Measure 2’)

(131) Germany points out that Measure 2 is not clearly defined as the term ‘intra-group services’ is ambiguous in so far as it could include all intra-group services provided within the DB group, including to and by other companies than DB Cargo.

(132) For the same reasons as set out in recital 106, Germany asserts that there are no State resources involved, since the provision of intra-group services is an internal process within DB AG and is financed with DB AG’s own business resources.

(133) Moreover, the decision to set up and execute the services is not imputable to the State. No State representatives were involved in setting up the services, as it was an organisational act by DB AG’s Board of Directors, which was purely internal to the company.

(134) Furthermore, Germany submits that no State representatives are involved in the concrete decisions on the execution of the intra-group services. In that respect, a distinction must also be made between service functions and group functions:

(a) In the DB group, depending on the financial volume of the agreement in question, decisions are taken solely by the competent hierarchical levels in the respective companies (including the definition of the terms and conditions). The intra-group service agreements are therefore based on management decisions. DB AG’s shareholder does not participate in those decisions, either directly through the general assembly or via the Supervisory Board.

(b) As regards the performance of the group functions, there are no service level agreements from the outset. Therefore, there is also no specific connecting factor for the involvement of State representatives in any company decisions on the performance of group functions. The absence of corresponding service level agreements clarifies the nature of the group functions. They are primarily for the management of the group, but not for the group companies.

(135) In addition, Germany points to the arguments set out in recital 107 concerning the imputability of Measure 1 to the State to further argue that Measure 2 is not imputable to the State.

(136) Germany also submits that the provision of the intra-group services does not economically favour DB Cargo. As Germany distinguishes between service functions and group functions, Germany also provides separate arguments concerning the non-existence of an economic advantage. However, as a preliminary remark, Germany explains that the establishment and execution of service and group functions are normal market behaviour. The centralisation of those functions at holding level creates significant synergies, enhances process quality, and supports unified corporate governance.

(137) With regard to the specific conditions for the performance of the service and group functions within DB group for DB Cargo, Germany submits:

(a) The service functions are invoiced to the group companies on the basis of service level agreements on market terms. With regard to the service functions, the DB Group explicitly commits itself to acting in line with market conditions arm’s length principle) in its Integrated Report. There is no indication in DB’s integrated report that DB AG provides services other than on market terms. Moreover, given the large number of transactions, it would hardly be possible, or at least disproportionate in the absence of any evidence of non-market pricing, to explain in detail the market conformity of all individual intra-group service relationships.

(b) For group functions, Germany explains that a distinction should be made, as to a large extent, the group functions only serve the group. To that extent, the group functions do not provide any service to group companies. To the extent that some of the group functions also serve group companies, the group does not, however, impose separate pricing vis-à-vis the group companies. However, any cost savings of the group companies are included in the group’s profit expectations for each company.

4.1.1.3.   Advantageous financing conditions of loans by DB Treasury (‘Measure 3’)

(138) With regard to Measure 3, Germany submits that for the same reasons as set out in recital 85, no State resources are involved in the provision of loans by DB AG’s Treasury to DB Cargo.

(139) Furthermore, according to Germany, the decision to set up DB AG’s Treasury and the individual decisions on granting the individual loans are not imputable to the State, as:

(a) No State representatives were involved in the establishment of DB AG’s Treasury. On the contrary, it was an organisational act by DB AG’s Board of Directors, which was purely internal to the company. The establishment and management of a central treasury is a management task.

(b) State officials are also not involved in the individual decisions on loans granted by DB AG’s Treasury. According to the rules of the DB Group, only the Head of Finance and Treasury in DB AG’s financial department decides on intra-group borrowing.

(140) In addition, Germany points to the arguments set out in recital 107 concerning the imputability of Measure 1 to the State to further argue that neither the establishment of DB AG’s Treasury, nor the decisions on the individual loans are imputable to the State.

(141) Germany further argues that the granting of individual loans by DB AG’s Treasury to DB Cargo does not provide DB Cargo with an economic advantage for the following reasons:

(a) Having a treasury centre corresponds to normal market conduct in groups. Treasury centres, for example, are used by almost all companies from industry and commerce represented in the German stock index DAX. The specific design of DB AG’s Treasury is also normal for the market. Other groups also pool in a central treasury centre, for example, the possibilities of short-term credit lines that can be drawn as part of cash pooling and/or fixed short-term lending, as well as the granting of long-term loans to the group companies.

(b) The specific loan terms of the loan agreements concluded between DB AG and DB Cargo are set at arm’s length depending on the market, the maturity, and risk. In particular:

(1) Market-dependent means that interest rates contracted on the capital market at the relevant time are the basis for the calculation of interest rates. Current interest rates are obtained from information service providers such as Refinitiv or Bloomberg.

(2) Maturity-dependent means that with the help of a yield curve (e.g. EUR swap curve), each repayment is included in the calculation of the weighted average interest rate at the interest rate of its respective term.

(3) Risk-dependent means that the premiums on the interest rates of the yield curve are differentiated according to creditworthiness. The premiums are generally set monthly and after major market movements and are derived from the ‘credit curves’ (i.e. the financing conditions of companies with identical ratings) of the information service providers.

(142) Concerning the risk premium, the creditworthiness premium for the infrastructure companies of the DB group corresponds essentially to DB AG’s credit margins on the money and capital market (i.e. including taking into account the ownership of the Federal Government). Credit margins for non-infrastructure corporates are higher, reflecting a ratio-based credit assessment and the credit margins quoted in the capital market. For example, only the infrastructure sector benefits from the rating improvement by the State ownership (the so-called Government Uplift).

(143) DB Cargo does not benefit from that credit rating improvement. It is at best priced at its ‘stand-alone Credit Profile’ (‘SACP’, Standard & Poor’s) or ‘baseline credit assessment’ (‘BCA’, Moody’s) where the ownership structure is irrelevant. As is customary in groups, companies are grouped into creditworthiness classes. If there is a PLTA in place, they are assigned to the creditworthiness class of the SACP or BCA of the group. A bank would also take into account the creditworthiness of the parent company in its credit assessment in the case of an existing PLTA.

(144) It is in line with normal market practice in groups that DB Cargo’s loans are not collateralised. DB AG, as a shareholder, operates here both as an equity provider and as a lender. Collateralising the loans would only provide DB AG with a formal, but no additional, material security. Any meaningful sale of assets would need the prior approval of DB AG.

(145) Another aspect which speaks against collateralisation within groups concerns the standing of shareholder loans in the event of insolvency as shareholder loans are subordinated to all other categories of claims, i.e. the rank the lowest even in the group of subordinated claims.

(146) Moreover, the application of the market economy operator test must take into account the fact that the loan is a transaction between two companies belonging to the same group and that there are therefore particular strategic considerations and synergy effects.

4.1.1.4.   Partial coverage by BEV of the remuneration of civil servants employed by DB Cargo (‘Measure 4’)

(147) With regard to Measure 4, the submissions of Germany focus on the condition of the selective advantage.

(148) Germany submits that, from the outset, the purpose of the Measure 4 was to relieve DB AG, a private company, from the burden of staff expenses arising from the specific structure and level of remuneration of civil servants. Germany further submits that, as a result of the ‘als-ob-Kosten’ principle set out in § 21(1) and § 23 of DBGrG, DB AG pays to BEV costs equal to the costs that DB AG would incur if it were to recruit its employees on the labour market instead of assigned officials. Germany submits that DB Cargo made all the payments to DB AG for the workers allocated to it on time (72) and provides several examples of the practical implementation of the ‘als-ob-Kosten’ principle within DB Cargo, as well as independent auditor’ reports on the expenditure incurred by DB AG demonstrating that the level of expenditure on contractual worker in a concrete professional situation (age, qualifications, pay group) corresponds to the level of costs to be reimbursed to BEV for assigned officials in a similar professional situation (73).

(149) Germany further submits that the measure is limited both in time and in scope and applies to a steadily shrinking population of workers workforce and concludes that the measure is not State aid because it does not relieve DB Cargo from charges that an undertaking normally has to bear. To the contrary, the measure relieves DB Cargo from exorbitant costs that other private railway undertakings do not have to bear. This is confirmed by the fact that officials employed by BEV are posted not only to DB AG but also to other undertakings competing with subsidiaries of DB AG. In such a situation, BEV takes over the above-market-price costs of posted officials on the basis of an individual agreement incorporating the ‘als-ob-Kosten’ principle.

(150) Finally, Germany submits that the staff regime adopted by Germany after the transformation of German railways is also compliant with the market economy operator principle. The Federal Government acted in the same way as would act a market economy operator by setting a scheme within which the trained railway civil servants that became redundant were hired out to the market for a market price. The scheme allowed the State to share the burden of remunerations and pensions of those highly qualified workers and limit the pressure on State assets (in this case, the Federal budget).

(151) In alternative, Germany submits that Measure 4 is an existing aid and that it is, in any case, compatible with the internal market.

4.1.1.5.   Measures concerned as

existing aid

(152) By letters of 17 May and 26 September 2023, Germany submits an alternative argumentation according to which, if the measures referred to in the Opening Decision were to be finally considered as State aid, they should be qualified as existing aid within the meaning of Article 1, point (b), of Council Regulation (EU) 2015/1589 (74) (‘the Procedural Regulation’).

(153) Germany insists that this applies in particular to the PLTA. For the application of the concept of ‘amendment to an existing aid’ in the context of Article 1(b)(v) of the Procedural Regulation, the principle of substance over form should be applied, meaning that only far-reaching changes to the content of an existing measure could result in a requalification of a measure as a new aid. Germany refers in that regard to the practice of EFTA Surveillance Authority (75) and of the Commission (76) and submits that, since 1999, there has been an uninterrupted chain of identical profit and loss transfer agreements linking DB AG to DB Cargo directly or indirectly – through one or two additional subsidiaries (DB ML and Railion (77)). Germany adds that the principles of allocation of profits and losses similar to those which underpin the PLTA were applicable already during the period going from 1994, that is from the creation of DB AG, to 1999, when different business units of DB AG were incorporated into separate subsidiaries and tied to the parent company with the agreements providing for a transfer of profits and losses.

(154) According to Germany, technical adjustments made in the PLTA in 2012 and 2016 in the context of the reorganisation of the DB Group did not influence the content of that agreement and are thus irrelevant under Article 108(1) TFEU. This is the more so because all the companies involved in the reorganisation were 100 % controlled by DB AG and were therefore part of the same undertaking.

(155) Germany further submits that the exception provided for in the second sentence of Article 1(b)(v) of the Procedural Regulation (78) is not applicable in the present case for two reasons. First, the main element of the PLTA, that is the absorption of losses of DB Cargo by the parent company existed at the earliest since 1994, whereas it is accepted that that exception does not apply retroactively to situations existing prior to the entry into force of that regulation in 1999 (79). Secondly, Germany submits that that exception cannot go beyond the provisions of Article 108 TFEU and create additional categories of cases for ‘new aid’. In this sense, it is doubtful that Article 1(b)(v), second sentence of the Procedural Regulation is in any way compatible with primary law. Moreover, Germany submits that the case-law would restrict that exception only to cases in which it was foreseeable that, once the market is liberalised, the measure would become aid. In addition, that provision would apply only in cases in which an activity is opened up to competition by Union law on a specific cut-off date that can be determined in advance. It would therefore be inapplicable in the case of the liberalisation of the freight market where a large number of different measures at national and European level contributed to the market opening over a long period of time (from 2003 to 2007).

(156) According to Germany, the consequence of qualifying the PLTA as an existing aid would be that the Commission should close the formal investigation procedure. Indeed, as the PLTA is an individual aid and not a scheme, the Commission would not be in the position to propose and enforce appropriate measures pursuant to Chapter VI of the Procedural Regulation governing the procedure regarding existing aid schemes.

4.1.2.   

Observations on the comments from interested parties

4.1.2.1.   Germany’s observations on ERFA’s comments

(157) Germany submits that ERFA observations confirm that the German rail freight sector is highly competitive and that, in recent years, private challengers have steadily expanded their market shares. Those observations invalidate the complainant’s allegations relating to the anticompetitive effects of the measures concerned. Germany adds that it follows from Article 345 TFEU, which prohibits discrimination against undertakings based on the criterion of ownership (public versus private), that the implementation of State aid rules cannot result in a de facto ban on instruments of organisation of intra-group relations (profit and loss transfer agreements, provision of intra-group services or loans) that would apply only to public undertakings.

4.1.2.2.   Germany’s observation on the complainant’s comments

(158) Germany follows the structure of the complainant’s observations and submits, with regard to the condition of

use of the State resources

, that Measures 1 to 3 involve the use of business revenues of DB group which are not State resources. The qualification of business revenues of a commercial undertaking established under private law as State resources cannot be based only on the position of the State as shareholder. What must be demonstrated is that the State, by exercising its dominant influence, is in a position to control the use of the funds (80). Germany reiterates its argument based on Article 345 TFEU (see recital 105).

(159) With regard to imputability, Germany acknowledges that the setting up of the PLTA was approved by a representative of the Federal Government in the general assembly of DB AG. However, State consent to a measure is not sufficient to establish imputability under Article 107 TFEU (81), as the case-law requires it to be demonstrated that public authorities were actively involved in the adoption of the measure or that they imposed the measure on the undertaking or instructed it to act in a specific way (82). In addition, imputability cannot be established on the basis of the approval of DB AG annual and consolidated annual statements by the Supervisory Board, given that (i) such approval does not entail any agreement to offset losses; and (ii) the representation of the government in the Supervisory Board is too small to influence effectively the decisions of that body.

(160) With regard to Measures 2 and 3, Germany reiterates that the imputability of those measures to the State cannot be based only on the fact that the State has a 100 % shareholding in DB AG. Germany submits that no State representative was involved in the adoption of those measures. In particular, under DB AG’s articles of associations and DB AG’s Supervisory Board’s Rules of Procedure, measures such as Measures 2 and 3 do not have to be approved and, in fact, were not approved by the Supervisory Board.

(161) Germany adds that the imputability of Measures 2 and 3 cannot be inferred from factors enumerated by the complainant. First, the alleged purely financial interest of the German State to receive dividends from DB group does not indicate the involvement of the State in the two Measures. The financial interest of the shareholder has never appeared in the case-law as a criterion relevant for imputability and rightly so, as it would mean that any decision taken by the corporate bodies would be imputable to the State because any decision can have an impact on the financial interest of the shareholder.

(162) Germany further submits that the imputability of Measures 2 and 3 also cannot be inferred from the provisions of § 65 BHO or from those of the PCGK, as those acts simply complement the statutory provisions relating to the management and supervision of companies with federal shareholding and create no requirements for approval of operations that go beyond the common rules of company law.

(163) Finally, Germany considers that other factors of imputability relied on by the complainant are irrelevant or incomprehensible.

(164) With regard to the condition of advantage, Germany submits that the Commission bears the burden of proving whether or not the conditions for the application of the private investor in a market economy test have been satisfied. If the Commission does not have the necessary evidence on which to ascertain if a private investor would have taken the measures in question, that cannot be to the detriment of the Member State (83). It is only in cases where the applicability of the market economy operator test is disputed that the Member State must establish on the basis of objective and verifiable evidence that it took the measure at issue in its capacity as shareholder and not as public authority.

(165) In addition, Germany alleges that the complainant is referring to case-law regarding capital injections, which are operations for which profitability analyses or business plans are occasionally carried out also in the private sector. In contrast, a priori profitability analyses are not carried out, and make no sense, in case of instruments such as PLTA, which are a neutral, structural element of the group. The absence of a profitability analysis made before the adoption of the PLTA is therefore irrelevant in assessing if the behaviour of the State was in line with the conduct of a private market operator. Finally, Germany notes that it provided to the Commission the relevant mid-term plans which are contemporaneous to the facts under examination, and which include in-depth analyses of the developments of profitability of DB Cargo in the years to come.

(166) More specifically with regard to Measure 1, Germany considers that the complainant wrongly focuses its comments on the fact that the PLTA was renewed in 2012 notwithstanding the constant losses and alleged lack of prospect for profits. Doing so, the complainant fails to take into account that (i) from 2006 to 2008 DB Cargo transferred to DB AG profits going beyond EUR 500 million; (ii) the losses in 2009 were a direct result of the financial crisis and in the following years DB Cargo managed to limit them (2010: EUR – 148 million, 2011: EUR – 100 million, 2012: EUR – 31 million); (iii) the 2012 PLTA was concluded in the expectation of the return to profits, which were expected also in the mid-term plans; (iv) the PLTA must not be regarded in isolation but as an instrument allowing for the establishment of fiscal unity by which the losses of one subsidiary can be off-set on the level of the entire group.

(167) With regard to Measure 2, Germany refers to its observations relating to the ambiguity of the concept of ‘intra-group services’ and reiterates its arguments made in its observations on the Opening Decision relating to the distinctions between, and the pricing of, the service functions and the group functions.

(168) With regard to Measure 3, Germany claims that the complainant’s allegations are incorrect. Germany claims that loan agreements between DB AG and DB Cargo were concluded on market terms and reiterates in that regard its arguments made in its observations on the Opening Decision. In addition, Germany contends that the fact that DB Cargo is State-owned does not influence the terms of the loans DB Cargo has contracted.

(169) With regard to Measure 4, Germany reiterates the arguments relating to the implementation of the ‘als-ob-Kosten’ principle it made in its observations on the Opening Decision. In addition, Germany claims that the present case differs from Case C-211/15 P

Orange/France Télécom v Commission

. In particular, unlike DB AG in the present case, France Télécom was paying lower social security contributions than its competitors.

(170) Germany also disputes the complainant’s arguments relating to procedural issues. Germany claims that there is no need to suspend the contested four measures as they do not involve State aid. In the alternative, Germany claims that the measures are existing aid and reiterates the arguments presented in that regard in its letters of 17 May and 26 September 2023.

4.1.3.   

Compatibility with the internal market

(171) Germany submits that the measures concerned do not constitute State aid and therefore the question of their compatibility does not arise. In the alternative, Germany argues that the four contested measures are existing aid and any issues relating to their compatibility should be examined within the framework set out in Chapter VI of the Procedural Regulation.

(172) As a subsidiary argument, Germany and DB AG/DB Cargo decided to subject DB Cargo to an economic transformation plan which at the same time, in Germany’s view, meets the requirements of a restructuring plan within the meaning of the Commission’s Rescue and Restructuring Guidelines (84) (the ‘R&R Guidelines’).

4.1.4.   

The restructuring plan of DB Cargo

4.1.4.1.   Description of the restructuring plan and supporting restructuring aid

(173) In July 2022 the Management Board of DB Cargo AG and the Management Board of DB AG took the decision to launch the process that eventually ended in the transformation plan by hiring a consultant company to develop a transformation strategy for the three business segments of DB Cargo (block train transport, single wagon load transport and combined transport) to put the company on a sound economic footing over a period of three years. In September 2022 Roland Berger were selected as consultants to develop the transformation strategy by the Management Board of DB Cargo AG and the Management Board of DB AG. The launch by DB Cargo of the Transformation Plan was a necessary response to the significant challenges facing the company.

(174) On 30 October 2023, and thereafter through various updates, Germany submitted that plan already in the course of implementation to the Commission in the context of the present procedure in order for it to be assessed as a restructuring plan within the meaning of the R&R Guidelines.

4.1.4.1.1.   DB Cargo’s Restructuring Plan

4.1.4.1.1.1.   Overview of DB Cargo’s Transformation Plan

(175) Germany explains that DB Cargo’s Transformation Plan aims at strengthening DB Cargo’s position in the long term so that it can make the necessary contribution to achieving DB AG’s corporate goals. The action plan is designed in line with the slogan ‘Europe needs a strong rail logistics provider. For the climate and for a sustainable economy.’ In that way, Germany expects DB Cargo to contribute significantly to increasing the modal share of rail in the German and European transport market, while also improving its own economic sustainability.

(176) In order to achieve profitability and competitiveness, Germany explains that DB Cargo will transform its business model. Transformation is required as the highly complex joint production system has been unable to respond flexibly to customer requirements within the framework of the current infrastructure. The result is shrinking productivity and heavy additional financial burdens, which have a drastic impact on profits. Germany further submits that DB Cargo must transform itself in order to become profitable and competitive again. In order to enable DB Cargo to respond more quickly to those challenges and customer requests, Germany explains that DB Cargo will adapt its business model so that smaller, more focused business areas will emerge. That customisation is based on business sectors/customer groups. In that context, the single-wagon load segment will continue to carry out a close exchange of services with all such business sectors/customer groups.

(177) Germany indicates that those more focused business areas will receive comprehensive autonomy, responsibility and all the resources for their business. That way of operating is expected to drastically reduce the complexity of the production model, which should significantly reduce costs and improve competitiveness.

(178) In the area of rail logistics, to strengthen its market presence as a rail logistics service provider, Germany indicates that DB Cargo now systematically offers its customers industry-specific services in its customers’ supply chains. They are logistics solutions that essentially include a rail service and supplement it with additional modules (for example road transport, warehousing and other individual logistics services).

(179) The area of single wagon transport, which is a key component of today’s rail freight transport in Germany and Europe, cannot be operated on a purely commercial basis as a full-coverage network given the current general framework. As a result, and with the implementation of DB Cargo’s Transformation Plan, Germany expects that single-wagon transport will be further developed into a supply-oriented, standardised and resilient network of flexible freight options, taking into account the funding provided for in the 2024 federal budget, and it is expected to be organised in a significantly more cost-efficient manner. Germany further submits that, in the medium and long term, the efficiency of the system will also increase with new technologies such as digital automatic coupling (DAC).

(180) Germany further explains that combined transport is the market of the future in rail freight transport. In order to be able to offer a competitive service, Germany indicates that DB Cargo also intends to implement structural measures in future.

(181) In addition, as part of its Transformation Plan, Germany explains that DB Cargo will invest in modern multisystem locomotives and new car technologies. Due to the progress made in digitalisation and automation, Germany expects that DB Cargo will also be able to carry out processes in rail transport, i.e. train formation, car treatment and maintenance, much more effectively and quickly, thereby increasing its competitiveness.

(182) Germany indicates that, thanks to modern transport equipment that meets customer requirements, DB Cargo aims at being able to integrate itself deeper into customers’ logistics chains. Germany explains that DB Cargo is therefore intensively advancing the development of its freight cars.

(183) Germany explains that by focusing on digitalisation, cost optimisation and sustainability, DB Cargo seeks both to recover from its current difficulties and to secure its future as a leading player in the European rail freight market. Germany therefore submits that the strategic initiatives outlined in the Transformation Plan provide a clear path towards a return to viability through long-term stability and growth.

4.1.4.1.1.2.   DB Cargo’s Restructuring Plan measures

(184) Germany explains that DB Cargo has initiated a Restructuring Plan characterised by radical changes within the production system, dissolution of interlinkages between segments, portfolio optimisation measures, partner cooperation instead of inhouse operations, and fundamentally adjusted resource requirements.

(185) Germany further indicates that the individual measures of the Restructuring Plan have been developed on a segment-specific basis for single-wagon, block-train and the respective maritime, continental and carrier divisions of the combined-transport segment. Furthermore, additional overarching restructuring measures have been designed to target the European subsidiary companies as well as the administrative and production-related overhead structures and the Control Tower (85).

(186) In that context, Germany explains that DB Cargo has completed the legally required negotiations for a reconciliation of interests with the labour representatives with regard to reductions in personnel costs, which still amount to more than EUR 100 million annually after pay rises that have taken effect in the meantime. On 2 October 2024, the reconciliation committee achieved a joint result and agreed on a workforce reduction of 4 582 full-time employees (ca. 25 % of workforce) until 31 December 2026 when compared to December 2023, and an additional reduction of 361 full-time employees until December 2029, resulting in a total reduction of 4 943 full-time employees (ca. 27 % of workforce). Germany further indicates that DB Cargo put the initial focus on combined transport, administration and production-related overhead and Control Tower overhead and explains that DB Cargo will put further focus, in line with the outlined measures of its Restructuring Plan in the following sections, especially on -wagon and block-train transport including with workforce reduction implications.

Table 10

Results of Reconciliation Committee, 2 October 2024: Reduction of FTE DB Cargo AG

4.1.4.1.1.3.   Restructuring Plan measures in the single wagon segment

(187) Germany explains that single wagon transport at DB Cargo involves nationwide collection and delivery of individual wagons and wagon groups from different consignors. After collection, the wagons are bundled into long-haul trains through multiple stages. Subsequently, the long-haul trains have to be dispatched back to single wagons or feeder trains prior to final delivery. The highly complex bundling process requires extensive infrastructural resources as well as manual operations and management capacity for planning and dispatching.

(188) Germany further indicates that single-wagon transport is seen as a more sustainable alternative to its direct competition for small and medium-sized shipments via road transport by truck. The restructuring of its production and business model is necessary, as well as having State aid schemes to overcome the systemic disadvantage of single-wagon transport operations versus truck transports and ensure a more environmentally friendly transport via rail instead of road. Germany submits, therefore, that the planned Restructuring Plan measures of DB Cargo in single wagon transport aim at fulfilling requirements for long-term viability and increasing the competitiveness of single-wagon transport.

4.1.4.1.1.3.1.   Restructuring Plan measure 1: Single Wagon segment network optimisation through design review

(189) Germany explains that the overall objective of the re-design of the single wagon network is the (a) radical simplification and enhancement of the robustness of the production; and (b) the consequent standardisation of the commercial offering.

(190) For the future production model, Germany submits that personnel and equipment will be dedicated to the single wagon segment, which constitutes a radical change when compared to today’s integrated production of single wagon, block trains and combined transport. Germany expects that this restructuring measure will result in a higher robustness/resilience, increase quality and allow cost savings that outperform the synergies of an integrated production, i.e. decrease cancellation fees and increase resource efficiency (e.g. lower number of locomotives required). In addition, Germany submits that the future design of DB Cargo’s network will focus on increasing frequencies on long runs, consolidate shorter connections and allow for more flexibility routing of wagons, i.e. better distribution of fixed cost and reduction of number of destinations.

(191) Germany further indicates that the commercial offering will be increasingly standardised, minimising individual, customer-specific requests. Germany further submits that eliminating the need for customer-specific prioritisation is expected to increase the throughput of shunting facilities as well as drastically decreasing the complexity of planning and dispatching, i.e. increasing overhead efficiency.

(192) Germany indicates that the ramp-up of the revised network is expected to start from 2025.

4.1.4.1.1.3.2.   Restructuring Plan measure 2: Single Wagon segment overall production optimisation measures

(193) Germany indicates that, along with the DB Cargo network design, the Restructuring Plan envisages two overarching production optimisation measures to improve the cost of single wagon operations:

(a) Revision of the current feeder and distribution services for single wagons, i.e. currently uneconomical services will be rearranged, downscaled or eliminated. Germany indicates that the measure is already being rolled out with first effects expected immediately.

(b) Energy cost savings by using dual-mode locomotives instead of less fuel-efficient diesel-powered alternatives. Germany indicates that positive effects from that measure are expected to be realised from 2026 onwards.

4.1.4.1.1.3.3.   Restructuring Plan measure 3: Single Wagon segment quality improvement and base price adjustment measures

(194) Germany indicates that those improvements in the production model will lead to quality improvements in the service for the customer (e.g. increase in robustness/resilience). Consistent with those quality improvements, Germany explains that price adjustments are negotiated by DB Cargo with the aim of (i) better covering the current increase of transport costs; and (ii) better capturing customers’ willingness to pay for single wagon services. Germany specifies that the respective price adjustments will be actual base price increases on top of factor cost compensations and will take effect already in 2024.

4.1.4.1.1.3.4.   Effects of the Single Wagon segment measures of the Restructuring Plan on DB Cargo’s EBIT projections

4.1.4.1.1.4.   Restructuring Plan measures in the Block Train segment

(195) Germany explains that block train transports are characterised by directly connecting volumes from rail siding/loading points to rail siding/unloading points without changing the train composition. Consequently, the key performance driver for block trains is a sufficient capacity utilisation in long-distance transportation. In the block train segment, Germany indicates that DB Cargo focuses on a broad network coverage with different forms of transport including more complex logistics solutions. The major Restructuring Plan measures for the block train segment are described below and focus on the transition towards operating as a smart logistics provider.

4.1.4.1.1.4.1.   Restructuring Plan measure 4: Block Train segment logistics solutions and portfolio optimisation

(196) Germany submits that DB Cargo’s Restructuring Plan will focus on smart logistics solutions with regard to block train transport (e.g. customised solutions or complex/cross-border traffic) and will perform a structured portfolio review along two key elements:

(a) Changes in production concepts to increase both efficiency and quality where DB Cargo can offer a unique selling point.

(b) Price differentiation with adjusted prices for customers with a higher willingness to pay and strong reliance on rail services. In that context, selected routes and customers with simpler needs (e.g. point-to-point traffic) might be discontinued in order to use freed resources for more complex/smart logistics solutions (potentially with partners) resulting in higher-margin business. Germany submits that, in general, only traffic with positive expected economic development perspective will be continued by DB Cargo. Germany further indicates that the portfolio optimisation will be implemented immediately with effects starting in 2024.

4.1.4.1.1.4.2.   Restructuring Plan measure 5: Block Train segment production robustness increase

(197) Germany explains that, currently, DB Cargo’s block trains are produced from an integrated production system with other block trains, combined transport and single wagon traffic. Germany further indicates that the potential synergies from an integrated production at DB Cargo are often not realised (e.g. due to unpredictable incidents such as infrastructure construction works at short notice, technical issues, resource availability) and therefore lead to higher actual production costs.

(198) Germany explains that this Restructuring Plan measure foresees the future operation of block trains to be encapsulated with dedicated resource allocations (similar to the corresponding measure in single wagon) to minimise dependencies and increase production quality. Likewise, Germany indicates that clear and consistent ownership for industries, customers and products will be established as part of the present Restructuring Plan measure.

(199) Germany further explains that increased robustness (86) in production will be further accelerated through the implementation of new collective bargaining agreements to increase flexibility in shift models. In the collective bargaining round of 2023, DB AG and DB Cargo achieved a large contribution from the union EVG to support the transformation of DB Cargo as that union established an option of extended locomotive drivers’ shift models, thereby increasing the flexibility for DB Cargo (in those models, locomotive drivers are (voluntarily) scheduled to work in multi-day work cycles with several rest periods away from home (incentivised monetarily) and longer rest periods at home. Germany indicates that it leads to increased productivity due to reduced personnel changes as well as the possibility to deploy train drivers independently of the original location. Germany foresees the ramp-up of the revised DB Cargo production system to start at the latest in 2025.

4.1.4.1.1.4.3.   Restructuring Plan measure 6: Block Train segment quality improvements and related base price adjustments

(200) Germany submits that quality improvements in the services for the DB Cargo customers (e.g. increase in robustness) will justify price adjustments which are negotiated with the aim of (i) better covering current increases in transport costs; and (ii) better capturing customers’ willingness to pay for more qualitative block train services. Germany explains that the respective DB Cargo price adjustments will be actual base price increases on top of factor cost compensations and will already take effect in 2024.

4.1.4.1.1.4.4.   Effects of Block Train segment measures of the Restructuring Plan on DB Cargo’s EBIT projections

Table 12

Effects of the Block Train segment measures of the Restructuring Plan on DB Cargo’s EBIT projections

4.1.4.1.1.5.   Restructuring Plan measures in the Combined Transport segment

(201) Germany explains that the combined transport is characterised by multimodal transportation, using trucks for first and last mile towards terminals or ports while using rail on the long-haul segments in-between. A segment is divided into three sub-segments: (i) maritime combined transport covers the transportation of containers between ports and the respective hinterland; (ii) continental combined transport covers the transportation of bulk-containers, semi-trailers and swap bodies from terminal to terminal; and (iii) carriers sales, which covers pure traction services for third party rail carriers or freight forwarders.

(202) In the first two segments, Germany indicates that players either cover an individual value chain element (traction, terminal operations, operator) or offer all services along the value chain as an integrated operator. Germany further explains that DB Cargo takes the position of both an operator in the maritime segment with its subsidiary TFG and a traction provider (namely, DB Cargo itself). In the continental segment, Germany indicates that DB Cargo is again a provider of traction and, in addition to that, owns shares (but has no majority control) of the operator Kombiverkehr GmbH & Co. KG. In carriers sales, Germany indicates that DB Cargo offers pure traction.

(203) The following section sets out the main Restructuring Plan measures for each of those three individual sub-segments.

4.1.4.1.1.5.1.   Restructuring Plan measure 7: Maritime Combined Transport sub-segment change of production

(204) Germany explains that, currently, combined transport trains are produced from an integrated production system with single wagon and block train operations. The synergies from that integrated production are smaller than the resulting complexity, leading to disruption-related quality issues and an increased resource requirement in comparison to those of direct competitors (e.g. defence or coal cargo of the single wagon or block train business with higher prioritisation compared to intermodal cargo causing delays for maritime combined transport). Germany further indicates that the Restructuring Plan therefore includes two measures that DB Cargo will implement:

(a) Dedicated resources (train drivers, locomotives and freight wagons) will be assigned to the maritime transport segment to improve production quality and allow to produce trains that have previously been cancelled due to production unavailability.

(b) On 2 October 2024, the Reconciliation Committee reached an agreement to modify the existing labour regulations of the company with respect to Maritime Combined Transport. As a result, the same amount of productivity increase will be reached as in an alternative transformation option relying on decreasing traction provision by DB Cargo and transfer of traction provision to traction subsidiary companies with more flexibility in their labour agreements, which will lead to higher productivity of train drivers (e.g. layover in outstation, special travel time compensation). Germany further explains that by reaching this agreement in October 2024, DB Cargo will now be able to reduce own train drivers, production-related overhead and Control Tower staff due to the new labour regulations which will allow increased productivity. Therefore, DB Cargo will not need to shift operations to traction subsidiary companies.

4.1.4.1.1.5.2.   Restructuring Plan measure 8: Maritime Combined Transport sub-segment network redesign

(205) Germany explains that, in DB Cargo’s current network model, the maritime operator TFG uses shunting concepts to distribute traffic between the German seaports and the hinterland, while competitors use combined transport terminals. Germany submits that, as part of the Restructuring Plan, routing for TFG will over time be switched to combined transport hub terminals accordingly instead of shunting yard operations to allow for increased train utilisation, increased capacity on trains, and more cost-efficient transfer of containers. Germany further indicates that DB Cargo plans the rollout of the new production model to be implemented by 2026 due to the required access to the hub terminals and transition of schedules.

4.1.4.1.1.5.3.   Restructuring Plan measure 9: Maritime Combined Transport sub-segment terminals integration

(206) Germany explains that the container terminal is an important part of the value chain in combined transport and that operators that integrate terminal operations in the traction chain are able to achieve profitability. Germany further indicates that DB Cargo’s Restructuring Plan includes the extension of its terminal operations by better cooperation with the terminal provider DUSS (Deutsche Umschlaggesellschaft Schiene Straße) in order for DB Cargo to be able to offer a more integrated product range (e.g. included container storage), optimise its production (e.g. better alignment of track and terminal slots) and realise synergies at locations where it already operates depots and DUSS has their terminal operation next to DB Cargo’s facilities.

4.1.4.1.1.5.4.   Restructuring Plan measure 10: Maritime Combined Transport sub-segment portfolio optimisation

(207) Germany indicates that DB Cargo’s Restructuring Plan foresees that the maritime traffic route portfolio will be optimised, especially with regard to low demand and low profitability routes, with an effect of that measure appearing in 2024.

4.1.4.1.1.5.5.   Restructuring Plan measure 11: Maritime Combined Transport sub-segment partnership options evaluation

(208) Germany indicates that, within the maritime market segment, liner shipping carriers as well as terminal operators pursue vertical integration strategies to increase their customer stickiness, safeguard transport capacity and internalise margins. Germany further submits that, for DB Cargo’s maritime operator TFG, such strategic developments by its competitors constitute a risk of volume losses in the event that their key customers i.e. liner shippers, relocate their volume to competitors they engage with in the context of e.g. the aforementioned vertical integration. At the same time, Germany considers that an investment of a partner could allow TFG to secure volumes and gain direct end customer access. Germany further explains that, as part of the DB Cargo Restructuring Plan, it is currently evaluating partnership options in that respect.

4.1.4.1.1.5.6.   Restructuring Plan measure 12: Continental Combined Transport sub-segment re-dimensioning of Kombiverkehr

(209) Germany indicates that DB Cargo owns shares (but has no majority control) in Kombiverkehr GmbH & Co. KG (‘KVG’), one of the two leading European operators (50 % of the shares are owned by DB Cargo and the remaining 50 % by over 200 freight forwarders). Germany considers that changes to the current business model, in which DB Cargo is only a supplier for pure traction services, are necessary in order to achieve long-term competitiveness. Germany further explains that joint discussions towards a new partnership-based business model to achieve profitability started in August 2023 but did not lead to a successful result.

(210) In that context, Germany further explains that there will be a phasing out of relations that do not generate the required margins, by January 2025 at the latest. Since the third quarter of 2024, KVG has begun to switch large parts of their train programme to third-party traction service providers so that freight forwarders requesting combined transport services will continue to have access to most of KVG’s route network in the future. All DB Cargo services with KVG which do not provide an economically viable perspective for DB Cargo have meanwhile been phased out to stop further losses.

4.1.4.1.1.5.7.   Restructuring Plan measure 13: Continental Combined Transport sub-segment production change

(211) Germany explains that, currently, combined transport trains are produced from an integrated production system with single wagon and block train operations but that the synergies from an integrated production are smaller than the resulting complexity leading to disruption-related quality issues and an increased resource requirement when compared to that of DB Cargo’s direct competitors. Germany therefore submits that two measures will be implemented as part of the Restructuring Plan:

(a) Dedicated resources will be assigned to the continental combined transport segment to improve production quality and allow for the production of trains that have previously been cancelled due to production unavailability.

(b) In the reconciliation of interest, which was completed on 2 October 2024, the parties reached an agreement to modify the existing labour regulations of the company with respect to continental combined transport. As a result, the same productivity increase is achieved now as in the alternative of outsourcing the traction services to traction subsidiary companies with more flexibility in their labour agreements and therefore higher productivity of train drivers (e.g. layover in outstation, special travel time compensation), which was initially sought. Germany further indicates that having reached this agreement in October 2024, DB Cargo will now be able to reduce train drivers, production-related overhead and Control Tower staff due to the new labour regulations which will allow increased productivity from 2025 onwards. Therefore, DB Cargo will not need to shift operations to traction subsidiary companies.

4.1.4.1.1.5.8.   Restructuring Plan measure 14: Carrier Sales sub-segment portfolio optimisation

(212) Germany explains that portfolio optimisation has already been initiated as part of DB Cargo’s Restructuring Plan in 2023 for those operations that currently do not yield the required margin and that do not provide an economically viable perspective. Low-margin traffic that cannot fulfil the required operating margin ambition and/or where customers do not accept necessary price adjustments will be removed from the portfolio. Germany further explains that customer reactions to price adjustments are currently estimated based on the experience of the DB Cargo sales team and the adaptations are planned accordingly. Germany expects that the volume will be reduced by approximately […] % in 2024 and approximately […] % in 2025 compared to the 2023 volumes and that, in the event of more DB Cargo customers not accepting price adjustments, the degree of reduction will be adjusted.

4.1.4.1.1.5.9.   Effects of Combined Transport segment measures of the Restructuring Plan on DB Cargo’s EBIT projections

4.1.4.1.1.6.   Restructuring Plan measures in DB Cargo’s European Subsidiaries

(213) Germany explains that DB Cargo has foreign subsidiaries in 13 countries: The Netherlands, France, Denmark, Italy, Switzerland, Belgium, the United Kingdom, Spain, Poland and the four EEC (European Eastern Corridor) companies, Czechia, Bulgaria, Romania and Hungary. The subsidiaries largely operate as production cost centres that offer rail services as an extension of railway operations across Europe. Germany submits that the aim of DB Cargo’s European network is to offer end-to-end cross-border logistics solutions across the continent with origins and destinations in and outside Germany, and Germany as a transit or shipping/receiving country.

(214) Germany explains that DB Cargo’s European subsidiaries account for approximately one-third of its overall employees. They are consequently significant for the economic performance of the company. Germany further submits that those subsidiaries are a crucial part of DB Cargo’s Restructuring Plan and have been investigated for cost-saving potentials. Consequently, Germany submits that three overarching cost optimisation levers will be implemented.

4.1.4.1.1.6.1.   Restructuring Plan measure 15: European Subsidiaries portfolio optimisation

(215) First, there will be portfolio optimisation through the review of transport operations for profitability and subsequent definition of efficiency measures along the three segments of single wagon transport, block train transport, and combined transport. Germany explains that unprofitable transports will be optimised through a combination of price adjustments, frequency reductions and bundling of origins and destinations, or they will be discontinued by DB Cargo. Germany further explains that this measure is closely aligned with the strategies across all three segments.

4.1.4.1.1.6.2.   Restructuring Plan measure 16: European Subsidiaries cost reductions

(216) Second, there will be cost reductions by consolidating depots, e.g. between Germany and The Netherlands or Germany and Switzerland, or reducing office space as part of the DB Cargo Restructuring Plan. Furthermore, Germany submits that DB Cargo production and administrative overhead will be decreased by, for instance, centralising customer service tasks to Control Tower or reduction of external hires.

4.1.4.1.1.6.3.   Restructuring Plan measure 17: European Subsidiaries’ operational efficiency

(217) Third, operational efficiency increase measures will be implemented as part of the DB Cargo Restructuring Plan through the optimisation of cross-border driver utilisation (e.g. between Germany and The Netherlands or Germany, Switzerland and Italy) and the increase in asset productivity as well as the implementation of a standardised IT infrastructure at DB Cargo.

4.1.4.1.1.6.4.   Effects of DB Cargo’s European Subsidiaries measures of the Restructuring Plan on DB Cargo’s EBIT projections

4.1.4.1.1.7.   Restructuring Plan measures in DB Cargo’s administration

(218) Germany explains that, in DB Cargo’s cross-divisional function, the administration department provides important services for DB Cargo. Germany submits that its Restructuring Plan will address and eliminate inefficiencies arising from redundant processes, overcapacity and services with limited value added.

(219) Germany explains that the reduction in complexity in the various DB Cargo business units is expected to reduce the required administrative capacities and that the measures should lead to an overall reduction of more than 80 full-time employee equivalents as compared to the headcount in July 2023 (ca. 17 % of considered departments) starting as of 2024.

(220) Germany explains that the following DB Cargo cost centres have been analysed in a detailed manner: IT department, (rental) building costs, CEO department, CFO department, offer management department, administrative costs of the domestic subsidiaries and other administrative costs as well as management structures.

4.1.4.1.1.7.1.   Restructuring Plan measure 18: Administration’s IT standardisation

(221) Germany submits that high running costs result from a high legacy in the IT landscape and sourcing of DB Cargo. Germany explains that, as part of the DB Cargo Restructuring Plan, running costs will be reduced by the optimisation of service level agreements, cloud solutions and modernisation of current applications as well as the shutdown of outdated applications. Additionally, Germany indicates that the IT project portfolio will be significantly reduced and personnel staffing through an external service provider will be decreased.

4.1.4.1.1.7.2.   Restructuring Plan measure 19: Administration’s office space reduction

(222) Germany explains that DB Cargo currently leases many properties in Germany (approx. 760). Due to increased remote working, Germany submits that DB Cargo will terminate rental agreements and therefore save approx. 25 % of rental costs at its main locations (Mainz, Duisburg, Mannheim, Munich, Berlin and Leipzig) in 2024. Starting in 2025, Germany indicates that DB Cargo will also reduce office space in all other locations across Germany following the reduction of production-related staff in all DB Cargo Management Regions.

4.1.4.1.1.7.3.   Restructuring Plan measure 20: Administration’s marketing and strategic activities with DB AG reduction

(223) Germany explains that, in DB Cargo’ strategy and policy/regulation areas, the duplication of tasks will be eliminated leading to reduced resource requirements. Additionally, Germany submits that the relatively high marketing budget of DB Cargo will be revised downwards as with fewer marketing campaigns and projects DB Cargo’s need for marketing operations will be reduced.

4.1.4.1.1.7.4.   Restructuring Plan measure 21: Administration’s manual finance processes digitalisation and automation

(224) Germany explains that DB Cargo’s CFO department comprises the main organisational units Accounting & Billing, Entity Controlling, and Product Controlling & Steering Logic. Germany explains that the currently high number of manual administrative processes in all areas will be digitised or automated, in particular in the area of billing and reporting processes, which will comprehensively reduce administrative overheads.

4.1.4.1.1.7.5.   Restructuring Plan measure 22: Administration’s offer management and service design departments rightsizing

(225) Germany explains that the duplications of tasks and responsibilities in DB Cargo’s offer management and service design departments have led to the development of oversized structures with considerable potential for optimisation. As part of DB Cargo’s Restructuring Plan, the numbers of personnel in those areas will be reduced.

4.1.4.1.1.7.6.   Restructuring Plan measure 23: Administration’s structure and domestic sales subsidiaries’ harmonisation

(226) Germany explains that the separation of tasks and responsibilities of DB Cargo’s internal sales departments and sales subsidiaries is unclear. Germany submits that DB Cargo plans to achieve savings in administrative overhead through the consolidation of duplicate functions.

4.1.4.1.1.7.7.   Restructuring Plan measure 24: Administration’s management structure rightsizing

(227) Germany submits that, due to the historical development of parallel structures within DB Cargo, there is an above-average number of executives, which leads to inefficiencies and high personnel costs, such as the duplication of tasks between the individual DB Cargo departments and the domestic and foreign subsidiaries. Germany further submits that organisational complexity also increases the administrative and management effort. Germany indicates that the Restructuring Plan provides for a reduction of executive positions in administrative departments by e.g. merging teams or outsourcing activities.

4.1.4.1.1.7.8.   Restructuring Plan measure 25: Administration’s other costs reduction

(228) Germany explains that other administrative costs to be reduced as part of the Restructuring Plan costs savings measures include employee benefits and an oversized catering offering (given the increased use of remote working).

4.1.4.1.1.7.9.   Effects of DB Cargo’s Administration measures of the Restructuring Plan on DB Cargo’s EBIT projections

4.1.4.1.1.8.   Restructuring Plan measures in DB Cargo’s production-related and Control Tower overhead

(229) Germany explains that, in the production-related and Control Tower overhead, DB Cargo’s Restructuring Plan will focus on complexity reduction in planning, resources availability and steering, in particular reducing the service catalogue and simplifying the processes in order to lower the resource required to perform the respective tasks.

(230) In that context, Germany submits that the measures simplifying the production models in each DB Cargo segment, e.g. the move from an integrated production towards dedicated segment-specific production systems, will lead to simplified processes in the production-related overhead and in the Control Tower. As a direct result of the more robust network, Germany explains that less DB Cargo capacity is required for, e.g. planning and scheduling trains and for steering production facilities. Germany further submits that similar effects will be realised through significantly lower interfaces and alignment needs between the planning/dispatching of the different DB Cargo segments.

(231) Germany explains that DB Cargo plans that the introduction of process simplification will lead to significant reductions in staff required for planning and dispatch, maintenance, in the Control Tower and the encapsulation of combined transport. For planning and dispatch, Germany submits that the main DB Cargo approach is to merge functions to increase synergies, increase automation and reduce non-essential process steps, which should lead to a reduction of required personnel by more than 50 full-time employee equivalents as compared to July 2023. The following measures to that effect are included in the Restructuring Plan.

4.1.4.1.1.8.1.   Restructuring Plan measure 26: Production-related and Control Tower’s integration of asset steering and personnel scheduling

(232) Germany explains that integrating the DB Cargo functions of asset management (the scheduling of train marshalling yards (ZBA)) and personnel scheduling results in unified oversight through the planning staff. The planning staff’s 'role is limited to defining the immediate timeframe (from Thursday to the Sunday of the subsequent week). Germany further explains that any shift modifications made subsequent to the commencement of the planning are managed by the ZBA scheduling, which factors in the consequences of downstream scheduling for the following week (such as employee rest intervals). Germany considers that this cultivation of mutual consideration in planning and execution aspects leads to a diminished requirement for DB Cargo personnel dispatchers, consequently enabling a reduction in DB Cargo staff.

4.1.4.1.1.8.2.   Restructuring Plan measure 27: Production-related and Control Tower’s detailed planning reduction

(233) Germany explains that by streamlining the DB Cargo planning procedures, it becomes possible to achieve a noteworthy reduction in essential tasks, leading to a decrease in the workforce required for asset planning. More particularly, Germany submits that, in the forthcoming scheduling of DB Cargo train marshalling yards (ZBA) and interchange stations (Kbf), the focus will be on conducting only annual preliminary planning. This planning will be constrained to fulfilling minimum shift requisites and will not involve modifications throughout the year. Additionally, collaborative planning will be developed for the DB Cargo ground personnel of shunters (AB) and wagon masters (TWB).

4.1.4.1.1.8.3.   Restructuring Plan measure 28: Production-related and Control Tower’s crew dispatching functions consolidation

(234) Germany explains that, to decrease the number of DB Cargo regional train dispatchers and regional network managers, in the future, the DB Cargo area controller will also assume the responsibilities of the local area dispatcher. Germany submits that dispatching will occur either from the central control centre or directly on-site, and that this process will be executed in close collaboration with the network managers stationed in the control tower.

4.1.4.1.1.8.4.   Restructuring Plan measure 29: Production-related and Control Tower’s long-distance shift planning process optimisation

(235) Germany explains that, through the implementation of the IPS (integrated planning and steering) system, DB Cargo’s long-distance shift planning process is poised for optimisation and automation, yielding substantial capacity efficiencies. Germany further explains that, in the envisioned VT (days of operation) state, the amalgamation of VT, KT (calendar days), and fine-shift planning will be orchestrated through IPS, featuring both consolidation and automation. Germany submits that this unified approach assumes procedural and regional responsibility for all DB Cargo route assignments. Germany submits that the outcome is a singular, overarching shift information, encompassing both long-distance and short-distance operating personnel. Germany considers that these process enhancements bear the potential to generate noteworthy capacity savings in planning for DB Cargo.

4.1.4.1.1.8.5.   Restructuring Plan measure 30: Production-related and Control Tower’s maintenance digitisation

(236) Germany explains that maintenance digital solutions will be implemented to reduce the required personnel and save DB Cargo costs until 2027 by, for instance, substantially reducing the supervisory role of the MöB (local commissioning personnel) over the facilities through the seamless integration of Asset & Maintenance and leveraging digital solutions such as BISON (image-based malware detection) and WMS (workshop management system). Germany further explains that such a shift implies that not every supplementary action needs explicit approval, as the facilities will proactively operate under their own responsibility. Rather than relying heavily on stringent oversight, future control measures will pivot towards cost-effective strategies and performance-based evaluation. Germany considers that these measures should curtail excessive maintenance activities on DB Cargo freight cars. Moreover, the forthcoming adoption of (virtual) centralisation, facilitated by camera detection, promises a more streamlined management of peak workloads. Germany consequently concludes that this Restructuring Plan measure holds the potential for DB Cargo’s MöB to reallocate capacities, ushering in a more efficient operational framework.

4.1.4.1.1.8.6.   Restructuring Plan measure 31: Production-related and Control Tower’s efficiency improvement

(237) Germany explains that DB Cargo’s Control Tower is a central hub for coordinating operations with customers. Its main role is to oversee shipments across Europe, involving all partners from beginning to end. It merges the customer's perspective with production feasibility to optimise solutions for customers, focusing on efficiency and results for DB Cargo. The Control Tower manages over 650 000 trains and over 7 million shipments annually throughout Europe. It was established in 2022, originating from the former DB Cargo Customer Service and Operations Centre.

(238) Germany explains that DB Cargo’s Restructuring Plan includes several initiatives to increase the efficiency of the Control Tower. On the one hand, those initiatives focus on the development and introduction of further IT processes/applications, which will make it possible to significantly reduce manual works. On the other hand, those initiatives focus on the further implementation of integrated performance management and the redesign of the customer interface – introducing standards that will replace the current large number of individual solutions while considering respective customer requirements. Germany considers that such initiatives will result in a reduction of required DB Cargo personnel by more than 200 full-time employee equivalents as compared to the number of such employees in July 2023 (ca. 18 % of considered departments excluding the share for combined transport).

(239) Germany further explains that the new strategy for each DB Cargo sub-segment in combined transport leads to further reductions of production-related and Control Tower overhead. Germany considers that, overall, a reduction of ca. 130 full-time equivalents in DB Cargo’s production overhead and ca. 155 full-time equivalents in the Control Tower (both figures are additional to the figures previously highlighted in the preceding sections) should be expected. About 50 % of this personnel reduction at DB Cargo will take place at the level of the subsidiaries. On that basis, Germany considers that significant costs savings can be realized by reducing overhead and streamlining processes.

Table 16

Effects of the Production-related and Control Tower overhead measures of the Restructuring Plan on DB Cargo’s EBIT projections

4.1.4.1.1.9.   Restructuring Plan measures in response to additional materialised risks

(240) Germany explains that a number of risks materialised between 2023 and 2024, which are addressed with mitigating countermeasures as part of an extended transformation and restructuring plan. Some of the risks that materialised and are addressed are reduction in federal budgets for rail freight support schemes, warning strike of train drivers, negative volume developments, personnel and factor cost increases and delays in the ramp-up of the implementation of transformation measures.

4.1.4.1.1.9.1.   Restructuring Plan measure 32: Substantial headcount reduction in response to negative volume trends

(241) Germany explains that the decision of the Reconciliation Committee made on 2 October 2024 (recital 186) allows DB Cargo to offset the personnel cost increases resulting from the new collective bargaining agreements. The agreed full-time employee number reflects (i) the decision and implementation of the transformation plan’s multiple restructuring measures and, in addition to that; (ii) the reduction of transport volumes; and (iii) an administrative headcount reduction programme known as ‘Together Strong’, initiated by DB AG to reduce administrative positions in finance, IT and HR (which programme is being executed by DB Cargo on top of the headcount reduction measures already reflected in the transformation plan).

4.1.4.1.1.9.2.   Restructuring Plan measure 33: Factor cost reduction in response to negative volume trends

(242) Germany explains that DB Cargo will implement several countermeasures with a direct impact on material costs. These include (i) adapting maintenance schedules as well as retention cycles to the reduced transport volumes; (ii) cancelling all research and development projects for process and asset digitisation with amortisation periods of more than three years; and (iii) accelerating portfolio optimisation in continental combined transport and block train transport.

4.1.4.1.1.9.3.   Restructuring Plan measure 34: One-off effects on net income in 2024 in response to negative volume trends

(243) Germany explains that some positive one-off effects on the operating and net income were realised in 2024. These include (i) the sale of no longer usable containers from the terminated DB Cargo business in Russia; (ii) the reduction of consulting and other services; and (iii) scrapping of […] freight wagons in the intermodal transport segment. Additionally, DB Cargo also accounted for a one-off reduction of EUR 51 million in current prices for traction energy from DB Energie in 2024.

4.1.4.1.1.9.4.   Restructuring Plan measure 35: DB Cargo maintenance productive increase

(244) Germany explains DB Cargo is implementing a productivity increase programme focused on its in-house locomotive and wagon maintenance. The programme is a cost reduction plan targeting maintenance infrastructure as well as materials and staff-efficiency and is expected to deliver EUR 25 million of cost reductions by 2026 and EUR 100 million of cost reductions by 2030.

4.1.4.1.1.9.5.   Restructuring Plan measure 36: DB Group internal services and traction energy costs reduction

(245) Germany explains that due to a general decrease in energy costs in Germany, the energy provider of DB Group, DB Energie, is able to lower its market sales prices for traction energy during the period 2025 to 2030. In addition, the prices of DB AG`s internal IT service provider (DB Systel) will be reduced. The use of artificial intelligence in the creation of digital services is expected to result in substantial increase in productivity.

4.1.4.1.1.9.6.   Restructuring Plan measure 37: Depreciation and investment reduction

(246) DB Cargo reviewed the investment budgets for the years up to 2030 and reduced them to the minimum. The reduced investment expenditure will result in a reduction of DB Cargo’s depreciation charges. The useful life assumptions for locomotives and wagons will be adjusted with regard to depreciation to the current useful life of the vehicle fleet.

4.1.4.1.1.9.7.   Restructuring Plan measure 38: Sale and lease back of locomotives

(247) Germany explains that DB Cargo will sell and lease back […] locomotives which will generate ca. EUR […] in hidden reserves per locomotive.

4.1.4.1.1.9.8.   Restructuring Plan measure 39: Locomotives purchase-to-lease conversion

(248) Germany submits that instead of making straight purchases of […] locomotives, DB Cargo will lease them in order to save cash upfront and make the business model more flexible by spreading the leasing costs of such locomotives over time.

4.1.4.1.1.9.9.   Restructuring Plan measure 40: Improvements in working capital

(249) Germany explains that DB Cargo will sell EUR […] in receivables by the end of 2024 to increase total cash and limit debt.

4.1.4.1.1.9.10.   Restructuring Plan measure 41: Single wagon segment price increases

(250) Germany explains that DB Cargo will develop additional willingness to pay among its customers in the single wagon segment from 2026. It will also pass on the effects of reduced track access and shunting system subsidies which affect the whole rail freight sector in Germany from 2027.

4.1.4.1.1.10.   Overall effect of the Restructuring Plan measures on DB Cargo’s EBIT projections

(251) Table 17 shows the expected financial effects of the key measures set out in the Transformation Plan on DB Cargo’s EBIT projections for the periods indicated.

Table 17

Overall effect of the measures of the Restructuring Plan on DB Cargo’s EBIT projections

(252) The following table shows the expected financial effects of the further measures under evaluation for DB Cargo due to risks that materialised in 2023 and 2024 (see recital 240).

Table 18

Overall effect of the countermeasures of the Restructuring Plan on DB Cargo’s Base Scenario EBIT projections

4.1.4.2.   Financing of the restructuring plan

(253) The financing of the Restructuring Plan, and its associated costs, consists primarily of financing stemming from private sources (own contribution) and only partly from financing stemming from State aid.

(254) The restructuring costs and their above-mentioned financing sources are described in the following sections.

4.1.4.2.1.   Restructuring costs

(255) DB Cargo’s restructuring costs would be totalling EUR 4 187 million, summarised in Table 19, consisting of the following:

(a) Operating losses: Germany indicates that DB Cargo’s operating losses between 2022 and 2024 of EUR 858 million in 2022, EUR 584 million in 2023 and EUR 472 million expected in 2024 (87) constitute approximately half of the restructuring costs.

(b) Other restructuring costs: during the restructuring period, DB Cargo will also incur other costs related to the restructuring or operating costs that will not be covered by expected revenues in the course of implementation of the restructuring plan and that are necessary for its successful completion, such as :

(a) advisors’ costs, labour and staff-related payments of DB Cargo subsidiaries, and costs related to the shift of business to DB Cargo’ subsidiaries, as well as

(b) other capital expenses in the investment plan despite its planned reduction in amount, working capital, refinancing costs for loans maturing and operating expenses.

4.1.4.2.2.   Sources of financing of the restructuring measures

4.1.4.2.2.1.   Restructuring aid

(256) Germany identifies the amounts provided to DB Cargo under the PLTA to cover its operating losses of 2022, 2023 and 2024 as the sources of aid financing of the restructuring costs i.e. EUR 858 million in 2022, EUR 584 million in 2023 and EUR 472 million expected in 2024 (88) for a total of EUR 1 914 million.

4.1.4.2.2.2.   Own contribution from the beneficiary

(257) Germany identifies the following main sources of DB Cargo’s contribution to the restructuring costs and indicates that the financial instruments used as sources of intra-group financing of the restructuring costs are all expected to be issued at market terms, to DB Cargo AG and will all be provided within the restructuring period so as to contribute to the effective financing of the restructuring plan (89):

(a) EUR 842 million of subordinated convertible loans available from 15 November 2024 until 31 December 2026 included (90), consisting of:

(a) On 15 November 2024, subordinated convertible loans for a total of EUR 218 million until 31 December 2031,

(b) On 1 April 2025, subordinated convertible loans for a total of EUR 110 million until 31 December 2031,

(c) In 2025, subordinated convertible loans for a total of EUR 83 million until 31 December 2031,

(d) On 1 December 2026, subordinated convertible loans for a total of EUR 315 million until 31 December 2031,

(e) In 2026, subordinated convertible loans for a total of EUR 116 million until 31 December 2031.

Those loans may be used exclusively for the refinancing of existing loan agreements between the contracting parties (91).

The interest rate for disbursed tranches is to be equal to (92): (i) EUR swap rate for five years (2,275 % as of mid-November 2024) (93); (ii) plus the spread determined according to the market conditions for refinancing of the lender (in September 2024, the spread was […] % per annum for drawings in EUR) and the determined creditworthiness of the borrower (the borrower is currently rated ‘[…]’ by the lender). Ratings are usually reviewed and adjusted annually; and (iii) plus a margin of […] % per year to reflect the subordination of the loans. Such margin was derived from comparing the market valuation of the DB Group’s subordinated bond due in 2029 with the maturity comparisons of senior cash bonds of the DB Group. Consequently, the applicable interest rate amounts to […] % on annual basis at present.

In addition, the loans can only be used by DB Cargo if the execution of the restructuring plan is respected at the time of the request. This means, in particular, DB Cargo achieving the following financial ratios (94):

Under those loan agreements, the lender (DB AG) is entitled, at any time, to convert one or more outstanding tranche(s) or amounts of outstanding tranches into equity by means of the allocation of DB Cargo’s capital reserve provided that DB Cargo has generated a positive annual surplus for at least two consecutive calendar years, up to twice the accumulated annual surplus since 1 January 2025, wherefrom amounts already converted into equity must be deducted (95).

Finally, the borrower is not entitled to provide credit or other financial services to third parties (with the exception of the lender and Deutsche Bahn Finance GmbH) (96).

(f) EUR 325 million of credit line facility already provided and signed by DB AG available from 1 August 2024 until 31 December 2026 included (97). The applicable interest rate for the individual drawdown is calculated on the basis of the interbank lending rate (for instance Euribor 6 months of 2,743 % as of mid-November 2024, on annual basis) (98) applicable to the agreed interest period at the time of the loan application (the Reuters market data) plus a margin determined according to the market conditions (currently standing at […] % per annum for drawings in EUR) for the refinancing of the lender and the determined creditworthiness of the borrower. The borrower is currently rated ‘[…]’ by the lender. Ratings are usually reviewed and adjusted on an annual basis. Consequently, the applicable interest rate for e.g. a 6-month period amounts to […] % on annual basis at present.

Under that loan agreement, DB Cargo is not entitled to provide credit or other financial services to third parties (with the exception of the lender and Deutsche Bahn Finance GmbH) (99).

In addition, DB Cargo undertakes to obtain the prior approval of the DB AG credit committees for the following commercial policy decisions (100):

(a) provided that DB Cargo has made use of the credit line of EUR 250 million or less at the relevant time: (i) investment and divestment projects, which are not part of the current medium-term business planning, totalling more than EUR 10 million per project; and (ii) entering into other future commitments, which are not part of the current medium-term business planning, totalling more than EUR 10 million per project;

(b) provided that DB Cargo has made use of the credit line of more than EUR 250 million at the relevant time: (i) investment and divestment projects with a total volume of more than EUR 5 million per project; and (ii) entering into other future commitments exceeding EUR 5 million per project;

(c) in the case of Sale & Lease Back Projects, DB Cargo commits to having the market conditions checked by the lender.

Finally, the provision of the credit line facility is subject to DB Cargo undertaking to ensure that the following financial ratios are complied with and, if necessary, to take remedial action to prevent the ratio from being overrun. If the ratio is exceeded, the creditor has the right to terminate the credit agreement (101).

(b) EUR 434 million of temporary credit line already provided and signed by DB AG available from 1 August 2024 until 31 March 2025 included (102) at market terms. The applicable interest rate is calculated on the basis of the interbank interest rate applicable for the agreed interest period (for instance Euribor 6 months of 2,743 % as of mid-November 2024, on annual basis) (103) at the time of the loan application (on the basis of real time market data from Reuters) plus a margin determined according to the market conditions (currently standing at […] % per annum for drawings in EUR) for the refinancing of the lender and the determined creditworthiness of the borrower (104). The borrower is currently rated ‘[…]’. Ratings are usually reviewed and adjusted on an annual basis. Consequently, the applicable interest rate for e.g. a 6-month period amounts to […] % on annual basis at the time of the Commission’s decision.

Until the full repayment of all amounts of credit outstanding under those credit lines, DB Cargo undertakes not to provide any security to other creditors, in particular in the form of encumbrances in respect of its present or future assets, unless the lender has given its prior written consent to the granting of such guarantees (105).

(c) EUR [460-560] million of divestments to be executed until 2026 (as described in recitals 305(a) and 318), consisting of:

(a) the expected asset (locomotives) sale due to an increased share of subcontracting in block train transport for approximately EUR […] million in 2025 to 2026;

(b) the planned sale of surplus locomotives in combined transport for approximately EUR […] million in 2025 to 2026;

(c) the planned sale of surplus locomotives from the German-French corridor for approximately EUR […] million in 2025 to 2026;

(d) the divestiture of selected subsidiary shareholdings ([…]) for approximately EUR […] million in 2025; and

(e) the expected sale of a substantial share in DB Cargo’s […] in 2025 to 2026.

(f) Factoring by […] EUR [100-140] million of receivables held by DB Cargo, which have an advantageous credit profile and consequently lower financing costs.

(g) Takeover by DB JobService GmbH of wage and redundancy payments for DB Cargo employees totalling EUR [100-140] million that are triggered by the restructuring plan, in application of collective labour agreements and DB AG group regulations applied within. DB JobService GmbH acts as the group employment and placement agency, which DB AG has interest in centralising in an ‘in-house’ job market, because of the synergies and cost savings in terms of skill-matching or amount of severance payments compared to outsourcing the agency to third party providers.

(258) The beneficiary’s own contribution to restructuring costs resulting from the various sources of finance put forward by the German authorities as summarised in Table 19 would amount to a total of EUR 2 291 million, 54 % of the EUR 4 205 million restructuring costs, as resulting from the estimation.

Table 19

Summary of the restructuring costs and sources of their financing

4.1.4.2.3.   Financial projections in baseline and pessimistic scenario

(259) Germany explains that the assumptions under which DB Cargo currently implements a comprehensive Restructuring Plan all aim at regaining profitability for the company. DB Cargo developed its Restructuring Plan in close collaboration with external consultants as advisers. Germany indicates that the Restructuring Plan is already under implementation and that the legally required consultations with workers’ representatives of DB Cargo with regard to personnel measures have been initiated.

(260) Germany explains that the underlying cost assumptions between 2025 and 2029 are based on DB group’s projections, except for the cost development for locomotives and freight wagons, which are subject to the general inflation development expectations. Between 2025 and 2029 the projected development of costs is as follows:

Table 20

Cost assumptions 2025-2029

(261) Germany submits that the assumptions of the baseline scenario of the Restructuring Plan affect all of DB Cargo’s business segments (single wagon transport, block train transport, combined transport) and stand on four main pillars.

(262) First, a radical change of the production system is proposed, dissolving interlinkages between business segments and strengthening management incentives for separate business lines. This change will reduce complexity of operations and, hence, increase the robustness and quality of production of DB Cargo’s output across all segments. The change in the production system will also allow the reduction of overhead.

(263) Second, by prioritising profitability over growth, DB Cargo focuses on those segments and customers for which DB Cargo holds, or will achieve after the implementation of the Restructuring Plan, a competitive market position, i.e. where it can produce at lowest costs or offers a unique product portfolio.

(264) Third, DB Cargo is open for and actively exploring opportunities to flexibilise the business and team up with third-party partners in order to implement subcontracting agreements or to create joint ventures in markets with future growth opportunities if and when such opportunities would materialise in the future.

(265) Finally, the Restructuring Plan entails a substantial change in how single wagon transportation is organised. Germany submits that, together with a public funding scheme for single wagon transport, this measure should allow to bring this structurally disadvantaged segment back to profitability.

(266) As a result of the Restructuring Plan, Germany indicates that, under the baseline scenario, DB Cargo is expected to achieve profitability in 2026 and maintain profitability on a lasting basis (with a positive EBIT target of EUR 251 million in 2028 and EUR 268 million in 2030). This implies an EBIT margin of 6.3 % in 2028 and also in 2030, which Germany indicates would be in line with current industry benchmarks.

(267) The baseline scenario takes into account the fact that, while the overall market position of DB Cargo in the German rail freight sector will, as in earlier years, most likely further decline, DB Cargo expects a relatively stable absolute production output in the coming years for single wagon and block train transport (as opposed to a decline in combined transport), thereby contributing to the competitiveness of rail freight and, hence, an increased modal share of rail.

(268) Germany further submits that the Restructuring Plan assumes significant contributions from DB Cargo’s workforce with respect to increased flexibility and the implementation of new, optional (but rewarded) shift models with longer operating times for train drivers. On 2 October 2024, DB Cargo’s Reconciliation Committee agreed on a workforce reduction of 4 582 full-time employees by the end of December 2026 (approximately 25 % of workforce when compared to December 2023) which will be increased to 4 943 full-time employees (approximately 27 % of workforce) by the end of December 2029.

(269) Given the current economic environment, characterised by a lack of skilled workers, the increasing private-sector demand for sustainable modes of transport and the financial support of the single wagon segment, Germany considers that the Restructuring Plan will benefit from positive external conditions and that the return to viability will be achieved within the restructuring period.

(270) On the basis of the above considerations, Germany submits that the baseline scenario of DB Cargo’s Restructuring Plan will enable the company to return to viability by the end of the restructuring period (31 December 2026) when it is expected to show a positive net income of EUR 95 million.

(271) Germany explains that such a financial performance is expected to be delivered thanks to the generation of a positive EBIT already by 2026 (with EUR 188 million) resulting from a moderate growth of the revenues ([…]) relative to the cost base, which is expected to remain essentially flat over the restructuring period ([…]) combined with a substantial restructuring of the workforce ([…]) and a productivity increase by making the business more flexible (costs of materials and other operating expenses […]).

(272) Germany submits that the moderate growth of the revenues in the baseline scenario results essentially from the various Restructuring Plan measures outlined above under Section 4.1.4. (4.1.4.1.1.2.) and in particular the following ones:

(a) Single wagon load segment: the resulting product quality improvements will allow for base price adjustments and the expected federal single wagon transport subsidy is expected to contribute to the single wagon load segment being operationally positive in 2026 and return to a reasonable profitability on net income level from 2027 onwards. The price development reflects a pass-through of factor cost increases. As a result, between 2025 and 2030 the single wagon segment is projected to experience a moderate volume increase with a compounded annual growth rate (‘CAGR’) of […] % while prices are expected to steadily rise at a CAGR of […] %. Germany however underlines that, without the federal single wagon support and despite the applicable Restructuring Plan measures, this segment would continue to be loss making.

(a) Block train segment: based on gains in productivity and quality, DB Cargo expects to be able to moderately increase prices at a projected compounded annual growth rate CAGR (106) of ca. […] % in the market. Furthermore, an additional revenue potential from freight structure effect due to the changed global political situation (e.g. favouring energy and defence) is expected. As a result, between 2025 and 2030, the block train segment is projected to experience a marginal volume increase with a CAGR of […] % while prices are expected to steadily rise at a CAGR of […] %. The price development reflects a pass-through of factor cost increases.

(b) Combined transport segment: partnership options are explored in market segments with future growth opportunities, i.e. in the maritime combined transport segment. Between 2025 and 2030 the maritime combined transport segment is projected to experience a moderate volume increase with a CAGR of […] % while prices are expected to steadily rise at a CAGR of […] %. The price development reflects a pass-through of factor cost increases.

(273) On the other hand, Germany explains that the reduction of the costs in the baseline scenario results primarily from the various Restructuring Plan measures outlined above under Section 4.1.4. (4.1.4.1.1.2.) and in particular the following ones:

(a) Single wagon load segment: the radical change of the production system (encapsulation) and a fundamental revision and re-design of DB Cargo’s single-wagon network through, among others, the increase of the travel frequencies on long runs, a revision of feeder and distribution services as well as a standardisation of the commercial offering.

(b) Block train segment: the transition towards becoming a smart logistics provider through (i) a customer portfolio optimisation towards complex and innovative rail transport solutions and the implementation of a dedicated shuttle services for important customers; and (ii) the increase of the robustness and quality of production, inter alia by separating block train production from single wagon transport and productivity gain through more flexible labour agreements with longer operating times for train drivers (on a voluntary basis) and the use of external service providers.

(c) Combined transport segment: the encapsulation of the production and the build-up of standalone businesses with dedicated resources, which DB Cargo expects will strengthen management incentives (based on end-to-end ownership) and, hence, efficiency. Key measures are the optimisation of the portfolio by phasing-out non-profitable transports (e.g. reduction of ca. […] % of volume in carrier sales), changing the offered network for continental combined transport and implementing a revised production model which gradually eliminates the present model of shunting all maritime wagons in a single hub in Maschen (close to the port of Hamburg). In addition, processes will be streamlined to specific business needs. Moreover, the Reconciliation Committee agreed, on 2 October 2024, to modify the existing labour regulations of DB Cargo with respect to combined transport. Germany explains that this leads to a substantial simplification of the DB Cargo business model for combined transport which will deliver the same amount of productivity increase as was delivered by the proposal made previously of decreasing traction provision by DB Cargo and transferring that to traction subsidiary companies with more flexibility in their labour agreements and therefore higher productivity of train drivers (e.g. layover in outstation, special travel time compensation). Germany further explains that having reached this agreement in October 2024 will enable DB Cargo to reduce own train drivers, production-related overhead and Control Tower staff due to the new labour regulations which allow increased productivity. Therefore, DB Cargo will not need to shift operations to traction subsidiary companies. The measures lead to a reduction of approximately 330 full-time equivalents train drivers, approximately 130 full-time equivalents in production planning and steering overhead employees as well as approximately 155 Control Tower full-time equivalent positions when compared to the actual number of such positions in July 2023. On that basis, Germany considers that significant costs savings can be realised by DB Cargo in that segment as well.

(274) Furthermore, Germany adds that the Restructuring Plan includes measures addressing the administrative and production overhead. On the one hand, Germany expects that the profit-over-growth principle and the portfolio optimisation will allow for a reduction of overhead costs, e.g. in terms of staff and all staff-related costs such as office space rental costs. On the other hand, Germany explains that the Restructuring Plan will implement several efficiency measures, including a far-reaching standardisation of IT structures, the reduction of duplicate organisational structures as well as revised planning, dispatch and Control Tower procedures and that such measures should contribute to decreasing costs and provide the ability to offer profitable services at a competitive price. These measures will sum up to a reduction of more than 400 full-time equivalents as compared to the actual number of such positions in July 2023 (in addition to the measures for combined transport, already described above).

(275) Germany further emphasises that DB Cargo’s Restructuring Plan differs from past efforts to increase efficiency and profitability of the company. In particular, Germany explains that it goes beyond more gradual measures to improve operational efficiency by fundamentally changing DB Cargo’s production processes, as well as its organisational structure and corporate strategy.

(276) Germany adds that the external conditions for a successful implementation of the Restructuring Plan would be more favourable than in the past, for the following reasons.

(a) In addition to an underlying growth of key industries, political support (such as emission trading schemes) and investments into rail infrastructure are expected to drive market growth in rail freight. Indeed, while the modal share of rail freight stagnated in the past, Germany argues that there is now a strong commitment both from the German government and the European Commission to increase the modal share of rail freight and that the higher priority they assign to decarbonising the transport sector in the context of climate protection policies will result in higher infrastructure investments in rail freight and direct financial support to compensate for existing structural disadvantages of the single wagon networks versus transportation by trucks.

(b) Moreover, Germany considers that, hand in hand with the public sector, private-sector demand for carbon-neutral transport modes is increasing and that this should lead to a higher willingness to pay for rail freight solutions by existing and future customers, which, in turn, Germany expects will contribute to strengthening rail in the intermodal competition with road transport.

(c) Finally, Germany submits that the demographics are currently rapidly changing within DB Cargo and, as such, support the implementation of the Restructuring Plan as the employees who entered the company in the large recruitment programmes during the 1980s, are now starting to retire from the company, which leads to attrition rates due to retirement of more than 3,5 % annually – a process which is going to last until the end of the 2020s. Germany argues that this process supports the Restructuring Plan of DB Cargo, as redundancies will not result in a great need for lay-offs.

(277) As a result of the above, while external circumstances such as trade conflicts and the COVID-19 pandemic have led to a reduced economic activity and therefore, slightly lower demand for rail freight in the recent past (similar development to other freight transport segments), in the coming years, the rail freight market is expected to grow again, with a CAGR of 1,6 % from 2022 to 2027.

[Bild bitte in Originalquelle ansehen]

Source:

Germany’s submission of 31 October 2023, p. 2024, 58, data from consulting firm SCI/Verkehr.

(278) When considering each separate business segment individually, Germany submits the following considerations with respect to volume growth:

(a) Single wagon / Block train: Germany explains that a broad variety of goods are transported in single wagons or block trains. Some of the most relevant good types are ore, steel, petroleum, coal, chemicals, automotive, waste and consumer goods. Similar to combined transport, block train and single wagon transports have been hit by macroeconomic disruptions in the past few years, leading to a 7 % decline in 2020 with a swift recovery in the following year (2021: 8,6 %).

(b) For the years from 2022 to 2027, an overall moderate rail freight volume growth of a CAGR of 0,8 % annually is expected. Germany submits that this growth is driven by the development of the underlying industries. Driven by an economic shift towards the production of semi-finished goods or the trend towards renewable energy sources, demand for some of the raw materials (especially ore and coal) is not growing across Europe. As a consequence, demand for block trains and single wagon transports is expected to remain stable or decline in these industries. Other types of products (e.g. steel, chemicals, automotive, consumer goods) are expected to generate additional demand for block trains and single wagon transports. For example, a strong growth is expected in the automotive industry (CAGR of 8,6 % between 2022 and 2027), as it recovers from past challenges e.g. supply chain disruptions. At the same time, new markets are developing that are expected to offer further growth potential for rail freight. Germany explains that examples of those business opportunities include rail pipeline solutions for green hydrogen which need railway connections to bridge gaps in the existing pipeline networks, logistic concepts for car-battery production as well as the decarbonisation of the steel industry in Europe which will lead to new circular economy solutions with scrap metals playing a much larger role in steel production in the years to come. Required transport volumes may lead to a rail freight revival as a result of those developments.

(c) Combined transport: Germany indicates that combined transport accounts for a third of the European rail freight market and is also driving growth with rates that historically have been above average, showing strong recovery after the COVID-19 pandemic at a rate of 8,6 % in 2021 and 3,2 % in 2022, resulting in a CAGR of 4,2 % annually between 2017-2022. For the years to come, Germany explains that the growth is expected to remain high at a CAGR of 2,6 % (2022-2027) mainly driven by GDP growth. Furthermore, Germany submits that combined transport will benefit due to increasing volumes especially of finished goods, rising maritime traffic at key European ports, increasing containerisation and new handling technologies for semi-trailers. At the same time, combined transport is becoming more accessible due to infrastructure investments (especially terminals) that allow to increase capacity in line with demand growth.

(279) Considering the above-mentioned market growth expectations, Germany submits that volume growth assumptions of DB Cargo are conservative and that in the short- and medium-term DB Cargo is not relying on market driven growth in single wagon transport. Germany considers that, in the block train and combined transport segments, DB Cargo’s planning is below the market growth rate.

(280) Germany finally submits that the above Restructuring Plan considerations have to be assessed against the background not only of a strong intermodal competition with road transport, but also of a highly competitive rail freight market from an intramodal perspective. In that context, Germany explains that operators other than DB Cargo hold a combined share of 57 % of the rail freight transport volume in Germany (in tonne-kilometres in 2022), which is a significant share compared with other Member States in Europe. In that respect Germany indicates that, despite being the former incumbent operator, DB Cargo’s share in the rail freight transport volume in Germany is the second-lowest share of any incumbent operator in their respective domestic country of all Member States in which DB Cargo is active. Germany further indicates that, for example, LINEAS holds a share of 57 % in Belgium, Groupe SNCF holds a share of 67 % in France and CD Cargo holds a share of 65 % in Czechia. At the same time, DB Cargo’s share in the German rail freight transport volume has decreased by 11 percentage points since 2016.

4.1.4.2.3.1.   Baseline scenario financials

(281) On the basis of the above assumptions used for the financial projections of DB Cargo’s Restructuring Plan, Germany explains that the baseline scenario of the Restructuring Plan takes into account a number of developments which have taken place in 2023 and early 2024 such as train drivers strikes (between January and April of 2024), the reduction in federal budgets for support schemes, negative volume trend (without strike and including the loss of transport volumes due to price pass-through) due to economic slowdown, inflation and personnel wage increases, the increased price competition and the delay in some of DB Cargo’s Restructuring Plan measures. Germany indicates that, in that context, the baseline scenario also includes countermeasures (recital 242) aimed at addressing the adverse effects of those developments so as for DB Cargo to achieve the return to viability within the restructuring period.

(282) Table 21 shows the quantified effect of the baseline scenario in the form of DB Cargo’s projected income statement during the restructuring period (1 January 2022 to 31 December 2026).

Table 21

DB Cargo’s Baseline Scenario Income Statement

(283) As can be seen from Table 21, Germany expects DB Cargo to still report a loss of EUR 348 million in 2024 at EBIT level while, as of 2026, the Baseline scenario of DB Cargo’s Restructuring Plan indicates positive EBIT figures, starting with EUR […] million by the end of the restructuring period (end of 2026) thanks, in general, to new production concepts allowing productivity gains and personnel cost reductions in response to the volume losses.

(284) Despite still being planned to be negative until 2025 (with EUR […]), the Net Income is also planned to turn positive by the end of the restructuring period (with EUR […]), showing a steady increase thereafter.

(285) With respect to DB Cargo’s projected balance sheet metrics, as can be seen from Table 22, Germany expects DB Cargo to maintain a positive equity position throughout the restructuring period (1 January 2022 to 31 December 2026) and beyond.

Table 22

DB Cargo’s Baseline Scenario Balance Sheet

(286) On the basis of DB Cargo’s projected financial statements, Germany indicates that DB Cargo’s main financial performance ratios are expected to evolve over the restructuring period as summarised in Table 23:

Table 23

DB Cargo’s Restructuring Plan Baseline Scenario

Financial Performance Ratios over the Restructuring Period and Beyond

(287) As can be drawn from the above Table 23, Germany submits that DB Cargo’s Restructuring Plan Baseline scenario will result in the improvement of DB Cargo’s financial performance ratios over the duration of the restructuring period and that DB Cargo’s ROCE is planned to exceed DB Cargo’s WACC (109) by the end of the restructuring period.

(288) Table 24 below shows the most recent (i.e. 2021 and 2023) profitability data of some of DB Cargo’s competitors in the European Union. This comparison includes three different groups which can be distinguished with regard to product-related market coverage and that each show a different profitability profile: (i) integrators with and without single wagon business; (ii) traction providers; and (iii) integrated combined transport operators.

(289) According to the data provided by Germany, the EBIT margin in the peer group, which is composed by a mix of European rail freight operators, was on average 2 % in the period 2021-2023 (with median value of also 2 %). Based on forecasted 2025 figures, DB Cargo’s EBIT margin of […] % is expected to be slightly below the industry average. However, DB Cargo expects to improve its EBIT margin to […] % by the end of the transformation period (end of December 2026). Such a level compares favourably to the subgroup of integrators without a single-wagon business which achieved on average an EBIT margin of 5 %.

Table 24

Peer Group Key Indicators 2021/2023

4.1.4.2.3.2.   Pessimistic scenario financials

(290) Germany explains that the pessimistic scenario of DB Cargo’s Restructuring Plan is based on the baseline scenario adjusted for specific possible adverse developments.

(291) Such possible adverse developments are summarised in Table 25.

Table 25

Risks included in DB Cargo’s Pessimistic Scenario

(292) As can be seen from Table 25, Germany considers that the Pessimistic scenario should reflect risks such as, among others, further reductions in the federal support schemes and a lower volume increase than assumed in the Baseline scenario due to prolonged economic weakness in the steel industry in Germany in addition to those already included in the Baseline scenario.

(293) Germany also indicates that countermeasures that could be implemented in the event that the Pessimistic scenario would materialize have been identified. Such countermeasures (primarily further cost and personnel reductions and locomotives sales-and-lease back operations) are expected to mitigate the above-listed additional risks included in the Pessimistic scenario as indicated in the following table.

Table 26

Countermeasures included in DB Cargo’s Pessimistic Scenario

(294) Such countermeasures should enable DB Cargo to turn profitable in 2026 (with a planned EBIT of EUR […]) and beyond despite negative EBIT levels of EUR […] in 2025 as confirmed in DB Cargo’s projected Pessimistic scenario Income Statement below:

Table 27

DB Cargo’s Pessimistic Scenario Income Statement