Non-confidential version MERGER NOTICE UNDER SECTION 96 OF THE ENTERPRISE ACT 2002 ("NOTICE") ME/6746/18 MENZIES AVIATION (UK) LIMITED / PART OF THE AIRLINE SERVICES BUSINESS OF AIRLINE SERVICES LIMITED DLA PIPER UK LLP 3 NOBLE STREET LONDON, EC2V 7EE UNITED KINGDOM AJW/AJW/311656/120225/UKM/91389352.3 Non-confidential version TABLE OF CONTENTS EXECUTIVE SUMMARY ..................................................................................................................... 3 LIST OF ANNEXES ............................................................................................................................... 7 LIST OF DEFINED TERMS ................................................................................................................ 13 PART I GENERAL INFORMATION ..................................................................................... 16 PART II MERGER DETAILS .................................................................................................. 19 THE MERGER SITUATION ............................................................................................................... 19 JURISDICTION ................................................................................................................................... 23 PART III SUPPORTING DOCUMENTS .................................................................................. 25 PART IV COMPETITION ASSESSMENT ............................................................................... 30 COUNTERFACTUAL ......................................................................................................................... 30 MARKET DEFINITION ...................................................................................................................... 30 SHARES OF SUPPLY .......................................................................................................................... 52 HORIZONTAL EFFECTS ................................................................................................................... 53 INCREASE IN THE MERGER PARTIES' BUYER POWER ........................................................... 104 LOSS OF POTENTIAL COMPETITION .......................................................................................... 105 VERTICAL EFFECTS ....................................................................................................................... 106 CONGLOMERATE EFFECTS .......................................................................................................... 107 ENTRY OR EXPANSION ................................................................................................................. 110 COUNTERVAILING BUYER POWER ............................................................................................ 114 EFFICIENCIES AND CUSTOMER BENEFITS ............................................................................... 115 OTHER INFORMATION .................................................................................................................. 116 PART V THIRD PARTY CONTACT DETAILS ................................................................... 117 PART VI DECLARATION ...................................................................................................... 120 2 Non-confidential version EXECUTIVE SUMMARY The transaction John Menzies plc ("Menzies"), through its wholly owned subsidiary Menzies Aviation (UK) Limited (the "Purchaser" or the "Notifying Party"), has acquired part of the airline services business of Airline Services Limited (the "Seller"), namely that in relation to de-icing, aircraft presentation and ground handling ("AS" or the "Target") (the "Transaction"). The Transaction is primarily complimentary, and the acquisition of the Target provides Menzies with the ability to offer new services or services in locations where Menzies does not operate. Menzies is a global provider of traditional ground handling services (typically comprising baggage, ramp, passenger and airside cargo transport services) with minimal activities in both de-icing and internal presentation services. []. AS is a de-icing and aircraft presentation (both internal and external cleaning of aircraft) focussed supplier, with minimal, recent activities in traditional ground handling services. AS is active in ground handling services at only two UK airports, London Gatwick ("LGW") and Manchester ("MAN"). AS is a very new entrant in ground handling at MAN, having only begun to offer those services in April 2018. Nevertheless, there are areas of overlap between the activities of Menzies and AS in the provision of ground handling, de-icing and internal presentation at some locations. However, Menzies and AS overlap at only eight airports in the UK (and globally, as AS is not active outside of the UK), while they are only active in overlapping services at five airports. These areas of overlap are described briefly below. Overlaps Menzies considers that the only areas where there are horizontal overlaps with AS would be in the provision of: • de-icing services at Edinburgh ("EDI"); • de-icing services at Glasgow ("GLA"); • ground handling services at LGW; • de-icing services at London Heathrow ("LHR"); and • ground handling and internal presentation services at MAN. Bidding markets The Parties have calculated shares of supply by reference to known turns serviced by each competitor currently operationally active at the respective overlap airports. However, in markets such as this (where prices are individually determined on a per contract basis through a bidding process), the shares presented can only offer a working proxy. Indeed, the CMA has previously agreed that market shares are particularly transient in this sector. Customers for the overlap services typically terminate contracts with short notice, and can, and do, invite competitors who may not be operating at an airport to tender. There are very low barriers to switching, indeed the evidence shows that customers regularly switch significant contracts with employees often TUPE'd across to new providers. Equally equipment is readily available. Due to the nature and size of individual airlines at an airport, the loss or gain of a single contract can have a significant change in a competitor's market share. 3 Non-confidential version Closeness of competition The Parties do not perceive the other to be their closest competitor at any of the overlap airports. Primarily, []. By contrast, []. In ground handling, Menzies' main competitors are [], with AS historically only active at LGW, having only entered MAN in April 2018. At LGW and MAN there are a sufficient number of handlers that have successfully bid for ground handling contracts historically (even when considered from an individual service line perspective) and a sufficient number of remaining handlers and bidders (and consequential competitive constraint) that will exist post-Transaction. Considering de-icing, AS was traditionally a de-icing and aircraft presentation specialist business, with its main competitors being []. At LHR, there will remain a sufficient number of de-icing providers (or potential providers) following the Transaction (either across the airport or from a terminal-by-terminal perspective). At EDI and GLA, there are notably fewer competitors than at LHR, but this is due to the dynamics at smaller airports, where there simply is not enough business to maintain a large number of de-icers (de-icing is entirely seasonal work). Swissport (which is an established global business offering an identical range of services as the Merged Entity) will remain the strongest competitor at both of these airports, and will certainly constrain the Merged Entity. Furthermore, Menzies only recently began providing de-icing services at GLA following a regional tender for []. The Transaction simply reverts the levels of competition to that which existed before that tender. Equally, in internal presentation, Menzies is a minor player and does not typically do any cleaning at the majority of UK airports. Key competitors of AS are companies like []. The only location where Menzies and AS overlap for internal presentation is at MAN, however at least four competitors will remain at MAN following the Transaction. Competitive constraints From the supply side, the markets in question include both independent providers (without corporate ties to airlines) and providers under airline ownership (which typically compete to service third party airlines alongside self-supplying their parent airline). Providers invariably operate across numerous airports throughout the UK (and internationally) and it is the case that competitive constraints are apparent at any particular airport from: (i) those providers that are currently operationally active at that airport; (ii) those providers that are not, but will be known by the airlines from other airports and consequently invited to bid for contracts (particularly given a lack of any barriers to expansion); and (iii) the threat that an airline could turn to self-supplying. This would be the case at EDI and GLA despite the perceived concentration post-Transaction. In this industry it is common for there to be only one or two providers at small airports. The airlines retain other means of exercising their buyer power (for example, employing numerous contracts with the same providers across different airports, hosting multi-airport tenders on a sole contract basis and the threat of switching to self-supply).