OFT refers Ryanair’s minority stake in Aer Lingus to Competition Commission
47/12 15 June 2012
The OFT today referred the completed acquisition by Ryanair Holdings plc of a minority stake in Aer Lingus Group plc to the Competition Commission for further investigation, due to competition concerns.
The OFT commenced an investigation into Ryanair's stake of 29.8 per cent in Aer Lingus in October 2010. The OFT was legally unable to act prior to this date because Ryanair's bid for outright control of Aer Lingus was under review by the European Commission and European Courts. The OFT's investigation was also suspended on two occasions, once by the OFT because it had insufficient information with which to proceed, and once due to a legal challenge by Ryanair, which was dismissed by the Court of Appeal on 22 May 2012.
The OFT has now concluded that Ryanair's stake may give it the ability to exercise material influence over the commercial policy of Aer Lingus and that there is a realistic prospect that its stake has resulted or will result in a substantial lessening of competition on a number of Ryanair and/or Aer Lingus routes between the UK and Ireland. The OFT therefore considers it appropriate for the Competition Commission to undertake a more detailed investigation into this matter.
Ryanair and Aer Lingus are, by far, the two largest scheduled airlines operating between the UK and Ireland by passenger traffic. They provide the only two scheduled airline services on five routes between the UK and Ireland and are the two most significant scheduled airline operators on the important London to Dublin route. Overall, around 370,000 scheduled air passengers travel between the UK and Ireland every month, with Ryanair and Aer Lingus together carrying over 80 per cent of these.
The OFT has identified three principal competition concerns for UK passengers that may result from the minority stake and which require further detailed investigation:
- Ryanair's ability to weaken Aer Lingus as a competitor through use of its voting power at Aer Lingus shareholder meetings, for example through restricting Aer Lingus' funding opportunities, influencing how it uses key assets such as airport slots at London Heathrow, or blocking acquisitions above certain value thresholds.
- Ryanair's shareholding may fetter Aer Lingus' options to benefit from investment by other airlines which may, in turn, weaken the competitive position of Aer Lingus over time including restricting its ability to expand and enter onto routes directly in competition with Ryanair.
- As a result of its shareholding, Ryanair's own incentives to compete against Aer Lingus may be dampened since it would be able to raise prices in the knowledge that a proportion of the profits of any lost passengers that switch to Aer Lingus would be recouped through its shareholding in Aer Lingus.
Amelia Fletcher, OFT Chief Economist and Decision Maker in this case, said:
'Ryanair and Aer Lingus are key rivals on routes between the UK and Ireland, together carrying over 80 per cent of traffic. Competition between airlines benefits passengers, keeping fares down and increasing flight frequencies.
'This OFT investigation has been into the acquisition of a minority stake in Aer Lingus. We are concerned that Ryanair's shareholding places it in a position to influence the commercial policy and strategy of Aer Lingus in a number of different ways that could dampen competition to the disadvantage of UK passengers. We therefore believe it is important for the Competition Commission to investigate this shareholding in more detail. The time that has elapsed since the acquisition took place does not make it any less important to passengers that our competition concerns are considered.'
- Ryanair Holdings plc currently owns 29.82 per cent of Aer Lingus Group plc. Ryanair initially acquired a stake in Aer Lingus in late-2006. It mounted a public bid for the entire shareholding in Aer Lingus in October 2006. The European Commission investigated the public bid and decided to prohibit it in June 2007. The General Court ruled in July 2010 that the European Commission does not have the ability to examine or require divestment of minority shareholdings that do not confer 'decisive influence' for the purposes of the EU Merger Regulation. The OFT subsequently commenced a UK merger investigation (see press release OFT statement on its investigation of Ryanair's minority shareholding in Aer Lingus (29 October 2010)).
- In January 2011, Ryanair appealed to the Competition Appeal Tribunal against the OFT's decision that it was 'in time' to investigate and refer, should it decide to do so, Ryanair's minority stake in Aer Lingus (see press release Ryanair minority stake in Aer Lingus: OFT believes it is 'in time' to consider acquisition (4 January 2011)). The Competition Appeal Tribunal delivered judgment in July 2011 that the OFT was in time to investigate Ryanair's acquisition of a minority stake in Aer Lingus (see press release OFT welcomes Competition Appeal Tribunal judgment in Ryanair/Aer Lingus merger case and The Competition Appeal Tribunal Judgment (28 July 2011)). In September 2011, Ryanair appealed the Competition Appeal Tribunal judgment to the Court of Appeal. In November 2011, the Court of Appeal stayed the OFT's investigation until the appeal had been determined. In May 2012 the Court of Appeal dismissed Ryanair's challenge to the Competition Appeal Tribunal judgment (see press release OFT statement on Court of Appeal judgment on Ryanair and Aer Lingus and The Court of Appeal Judgment (22 May 2012)). In June 2012, the Supreme Court denied Ryanair permission to appeal to it in respect of the Court of Appeal judgment.
- Under the Enterprise Act 2002 a relevant merger situation is created if two or more enterprises have ceased to be distinct enterprises; and the value of the turnover in the United Kingdom of the enterprise being taken over exceeds £70 million; or as a result of the transaction, in relation to the supply of goods or services of any description, a 25 per cent share of supply in the UK (or a substantial part thereof) is created or enhanced.
- Under the Enterprise Act 2002 the OFT may treat as a relevant merger situation a minority shareholding where that shareholding gives its owner the ability materially to influence the behaviour and policy of the target company including the target company's strategic direction and commercial objectives. As stated in the OFT's Mergers - jurisdictional and procedural guidance (OFT527, paragraph 3.15) this is a lower level of control than the 'decisive influence' test used by the European Commission under the EU Merger Regulation.
- The reference test - the OFT has a duty to make a reference to the Competition Commission if it believes that it is or may be the case that a relevant merger situation has been created, and the creation of that situation has resulted or may be expected to result in a substantial lessening of competition within any market or markets in the United Kingdom for goods or services.
- Timing. The Enterprise Act 2002 gives the OFT the power to suspend its statutory deadline in completed mergers if it is waiting for requested information from the merging parties to conduct its investigation. In this case, the statutory deadline was suspended between October 2010 and August 2011. Further, the Court of Appeal stayed the OFT's investigation from 24 November 2011 to 22 May 2012, at which point the OFT, Ryanair and Aer Lingus agreed a 15 working day extension to the OFT's deadline. The OFT's statutory deadline in this case is Monday 18 June 2012.
- The Competition Commission is expected to report by 29 November 2012. It may extend the 24-week period within which it is required to publish its report by no more than eight weeks if it considers that there are special reasons why the report cannot be published within that period.
- The full text of this decision will appear in the mergers section of this website at a later date.
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