Wednesday, April 4, 2012

IAG/ BMI clearance


The development below to an extent  provides an insight into how airline mergers are treated in the EU- Neelam Mathews

By: Suzanne Rab
King & Spalding

April 4, 2012

On 2 April 2012, the European Commission cleared International Consolidated Airline Group's (IAG) acquisition of British Midlands (BMI).  The Commission accepted conditions that British Airways, owner of IAG, release 14 slots at Heathrow and commit to provide competing long-haul flight operators with passengers who are connecting at Heathrow.

The Commission stated that its investigation initially found that the transaction risked creating monopolies on a number of domestic, European and international routes out of Heathrow which was found to be Europe's busiest passenger airport.

Of the divested slots, 7 relate to domestic and 5 to medium-haul routes and two additional slots will be released to Transaero, a Russian airline

It was always expected that it would be challenging to convince the Commission that remedies offered by the parties would be sufficient to allay competition concerns in a transaction involving BA acquiring slots that it could use to enhance its position at Heathrow.

The notification of the transaction, in the wake of two prohibitions in the airline sector - Ryanair/ Aer Lingus and Olympic/ Aegean - makes the clearance decision interesting.  Both the latter two mergers involved cases where the airlines were operating from the same airports. In IAG/ BMI, the parties have managed to convince the Commission at Phase I to take a broader view of airport competition maintaining that the merging parties also faced competition from carriers operating principally from other airports.

The additional factor of BMI's loss-making position may also explain why the parties were prepared to offer up extra slot divestments at the outset, rather than to dig in their heels and wait for a more in-depth investigation and more protracted review at Phase II.

Virgin Atlantic has been a vociferous complainant throughout and has gone on record to reassert its opposition.  It says that it is considering its options for appeal of the decision.  One of the criticisms Virgin has maintained is that the merger would allow the combined entity to act as a gatekeeper limiting access to the feeder traffic which forms a large proportion of Virgin's passengers.

The case involved an extensive pre-notification phase and indicates that a willingness on the part of the merging parties to offer wide-reaching remedies can in some cases be sufficient to secure a first phase clearance.

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