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Lufthansa/ Sn Airholding Regulation (Ec)

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Lufthansa/ Sn Airholding Regulation (Ec) EN This text is made available for information purposes only. A summary of this decision is published in all Community languages in the Official Journal of the European Union. Case No COMP/M.5335- LUFTHANSA/ SN AIRHOLDING Only the English text is authentic. REGULATION (EC) No 139/2004 MERGER PROCEDURE Article 8 (2) Date: 22/06/2009 COMMISSION OF THE EUROPEAN COMMUNITIES Brussels, 22.06.2009 C (2009) 4608 final PUBLIC VERSION COMMISSION DECISION of 22.6.2009 declaring a concentration to be compatible with the common market and the EEA Agreement (Case No COMP/M.5335 – Lufthansa/ SN Airholding) 2 Commission Decision of 22.6.2009 declaring a concentration to be compatible with the common market and the EEA Agreement (Case No COMP/M.5335 – Lufthansa/ SN Airholding) (Only the English text is authentic) (Text with EEA relevance) THE COMMISSION OF THE EUROPEAN COMMUNITIES, Having regard to the Treaty establishing the European Community, Having regard to the Agreement on the European Economic Area, and in particular Article 57 thereof, Having regard to the bilateral Agreement between the European Community and the Swiss Confederation on Air Transport,1 Having regard to Council Regulation (EC) No 139/2004 of 20 January 2004 on the control of 2 concentrations between undertakings, and in particular Article 8(2) thereof, Having regard to the Commission's decision of 26 January 2009 to initiate proceedings in this case, 1 OJ L 114, 30.4.2002, p. 73. 2 OJ L 24, 29.1.2004, p. 1. 3 Having given the undertakings concerned the opportunity to make known their views on the objections raised by the Commission, 3 Having regard to the opinion of the Advisory Committee on Concentrations, 4 Having regard to the final report of the Hearing Officer in this case, WHEREAS: INTRODUCTION (1) On 26 November 2008, the Commission received a notification of a proposed concentration pursuant to Article 4 of Regulation (EC) No 139/2004 ("the Merger Regulation") by which the undertaking Deutsche Lufthansa AG ("LH", Germany) acquires sole control within the meaning of Article 3(1)(b) of the Merger Regulation of the undertaking SN Airholding SA/NV ("SNAH", Belgium) by way of purchase of shares ("the transaction"). (2) After examination of the notification, the Commission concluded on 26 January 2009 that the transaction fell within the scope of the Merger Regulation and that it raised serious doubts as to its compatibility with the common market and the EEA Agreement. The Commission therefore initiated proceedings in accordance with Article 6(1)(c) of the Merger Regulation. (3) The Commission sent LH a Statement of Objections on 24 March 2009. An Oral Hearing took place at LH's request on 15 April 2009. On 28 April 2009 the Commission sent LH a Supplementary Statement of Objections, which LH replied to on 5 May 2009. I. THE PARTIES (4) LH is the largest German airline. It provides scheduled passenger and cargo transport and related services (maintenance, repair and overhaul services ("MRO"), in-flight catering, and IT services). In 2007 LH carried 45 million passengers to 206 destinations with its 272 aircraft. It has hubs at Frankfurt International Airport and Munich airport, and a base at Düsseldorf airport. LH also controls Swiss International Air Lines Ltd. ("LX")5, based at Zürich airport, Air Dolomiti, Eurowings, and the low-cost carrier Germanwings. LH is in the process of acquiring control over the British carrier British Midland ("BMI").6 In addition, LH holds 19% of the shares of Jet Blue, a low-cost 3 OJ 2009 C295/08 4 OJ 2009 C295/09 5 See case COMP/M.3770 – Lufthansa/Swiss. 6 See case COMP/M.5403 – Lufthansa/British Midland. Although this latter transaction was cleared by the Commission on 14 May 2009, it was notified on 3 April 2009 after the notification of the LH/SN transaction. According to the "first come, first served" principle, the overlaps between BMI and SN have been investigated in the Lufthansa/British Midland case and are not investigated for the purpose of this case. 4 airline active in the United States of America Both LH and LX are members of the Star Alliance. (5) SNAH is the holding company of SN Brussels Airlines ("SN"). SNAH currently has 35 shareholders including the Brussels and the Walloon governments. The "Brussels Airlines" brand results from the combination of the former "SN Brussels Airlines" and Virgin Express in 2004/2005. SN Brussels Airlines was formed in 2002, after Sabena became insolvent at the end of 2001. In 2007 SN carried 6 million passengers to 61 destinations with its 51 aircraft. SN has its hub at Brussels airport. SN is not a member of any alliance. SN also has limited air cargo and charter services. II. THE OPERATION AND THE CONCENTRATION (6) Pursuant to the Acquisition Agreement signed by LH and SNAH on 15 September 2008, LH would initially acquire 45 % of SNAH's shares, with call options on the remaining shares which can be exercised as of the first quarter of 2011. Although the present transaction would be completed in two stages, LH would exercise direct sole control over SNAH upon completion of the first stage, that is, after the acquisition of 45% of SNAH's share capital. The two- stage procedure is due to [description of strategic rationale]*. (7) LH would be the only shareholder with veto rights, and no strategic business decisions such as the approval of the budget, major investments or the appointment of senior management would be possible without LH's affirmative vote. The main minority shareholder is the Virgin group with […]*%. Pursuant to the shareholding agreement, Virgin does not have any special voting rights. The rest of SNAH's shareholding is fragmented; none of the remaining […]* shareholders owns more than […]*% of shares and there is no commonality of interests among SNAH's shareholders. Accordingly, LH would have through the transaction sole control over SNAH. (8) The transaction would bring SN into the Star Alliance and into LH's frequent flyer programme ("FFP") while leaving SN largely responsible for its own management (the LH/LX "decentralised management" model). (9) As a result of the transaction, LH would acquire sole control over SNAH, and ultimately of SN. The transaction thus constitutes a concentration within the meaning of Article 3(1)(b) of the Merger Regulation. III. COMMUNITY DIMENSION (10) The undertakings concerned have a combined aggregate world-wide turnover of more than EUR 5 000 million (LH EUR […]*million; SN EUR […]* million)7. Both LH and SNAH have a Community-wide turnover in excess of * Parts of this text have been edited to ensure that confidential information is not disclosed; those parts are enclosed in square brackets and marked with an asterisk. 7 Turnover calculated in accordance with Article 5(1) of the EC Merger Regulation. 5 EUR 250 million each (LH: EUR […]* million; SNAH: EUR […]* million), but neither achieves more than two-thirds of its aggregate Community-wide turnover within one and the same Member State. The methodology used for calculating the parties' turnover is the "point of sale" methodology, although in any event the thresholds would also be met under the "point of origin" method or "50/50 split" method.8 The notified operation therefore has a Community dimension within the meaning of Article 1(2) of the Merger Regulation. IV. COMPETITIVE ASSESSMENT (11) The transaction as initially proposed by the notifying party would lead to a significant impediment of effective competition within the EEA. The transaction would significantly impede effective competition on the market for scheduled air transport of passengers, and in particular on a number of short- haul routes. The notifying party however submitted a set of commitments susceptible to restore effective competition. It is therefore concluded that the transaction would not lead to significant impediment of effective competition, subject to compliance with the commitments submitted by the notifying party. A. SCHEDULED AIR TRANSPORT OF PASSENGERS 1. RELEVANT MARKET DEFINITION 1.1 Point of origin/point of destination city pairs (12) The Commission has in the past defined the relevant market for scheduled passenger air transport services on the basis of the "point of origin/point of destination" (O&D) city-pair approach.9 This market definition reflects the demand-side perspective whereby customers consider all possible alternatives of travelling from a city of origin to a city of destination which they do not consider substitutable to a different city-pair. On this basis, every combination of a point of origin and a point of destination is considered to be a separate market. While it can be argued that there is a certain degree of supply-side substitutability between different O&Ds, this remains limited as the decision to operate a route is a strategic business choice depending on various factors, such as existence of a base at one end of a route, customer mix in the relevant 8 These three methodologies are defined in COMP/M.4439 Ryanair/Aer Lingus, paragraph 13 et seq. 9 See case COMP/M.3280 – Air France/KLM, paragraph 9 et seq.; case COMP/M.3770 – Lufthansa/Swiss, paragraph 12 et seq and case COMP/M.4439 – Ryanair/Aer Lingus. The O&D approach was also confirmed by the European courts. See also Case T-177/04 easyJet v Commission [2006] ECR II-1913, at paragraph 56; and Case T-358/94 Air France v Commission [1996] ECR II-2109. 6 catchment area, yield, fit in the network etc. As a general rule, carriers tend to operate routes where they have a base or a hub at either end.10 (13) The market investigation conducted in the case at hand largely confirmed the O&D approach as, according to the respondents, the competitive landscape prevailing on each route – for instance in terms of the number of players, frequencies offered and resulting available fares – is specific to each O&D.
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