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From Antitrust Law Daily, February 13, 2015

Ryanair’s appeal of Aer Lingus divestiture order dismissed

By Linda O’Brien, J.D., LL.M.

An appeal of a U.K. judgment requiring European low-cost airline Ryanair to reduce its stake in competitor Aer Lingus Group plc from 29.8 percent to five percent was dismissed by the Court of Appeal for England and Wales. The Court of Appeal held that the decision of the Competition Appeal Tribunal (CAT) was not procedurally unfair, did not breach the duty of sincere cooperation under the Treaty on European Union (TEU), and did not impose a disproportionate remedy (Ryanair Holdings Plc v. The Competition and Markets Authority, Case no. 1219/4/8/13, February 12, 2014).

Background. Most of Ryanair’s stake in Aer Lingus was acquired in 2006, when Ryanair launched its first public bid for the Irish national air carrier. The European Commission (EC) later declared that the bid would significantly impede effective competition in the common market. In 2012, Ryanair’s minority stake in Aer Lingus was referred for investigation to the U.K. Competition and Markets Authority (CMA), formerly the Competition Commission (CC). In response to the reference, Ryanair announced another public bid for Aer Lingus.

The EC initiated proceedings and declared that the bid was incompatible with the internal market, since the notified concentration would significantly impede effective competition in the market. Ryanair sought disclosure from the CMA, including the identities of third party airlines that provided information about the effect of Ryanair’s minority stake on Aer Lingus’ ability to combine with other airlines. The names were not disclosed when, in August 2013, the CMA published its final report. In the report, the CMA concluded that the minority stake was a significant impediment to some form of combination with another airline, there was a real likelihood of such combination taking place, and a reduction in Ryanair’s holding to five percent would be an effective remedy.

Ryanair appealed to the CAT, which upheld the determination made by the CMA. Ryanair subsequently challenged the CAT judgment on three grounds: (1) it was procedurally unfair for the CMA to refuse to disclose the identities of the airlines it relied upon in reaching its conclusion; (2) the divestiture decision was a breach of the duty of sincere cooperation under the Treaty on European Union (TEU) since the material risk of conflict between the order and a future decision by the EC; and (3) the divestiture remedy was disproportionate.

Nondisclosure of other airlines. The U.K. Court of Appeal first determined that the nondisclosure of the names of the other airlines did not make the CMA proceedings procedurally unfair to Ryanair. Ryanair was not required to know the names of the airlines involved in order to respond to the issue that its minority stake was a significant impediment to a merger with a third party. The CMA’s analysis of the likelihood of such an association was based on a survey of trends in the industry, Aer Lingus’ own commercial objectives, and the CMA’s assessment of the attractiveness of Aer Lingus. Ryanair was in fact able to submit evidence that Aer Lingus was an unattractive partner for any airline, apart from Ryanair. Thus, the CMA’s nondisclosure did not preclude Ryanair from responding to the likelihood of such a combination.

Duty of sincere cooperation. Additionally, the CMA’s direction for the divestiture involved a breach of duty of sincere cooperation set out in the TEU. The court noted that the TEU seeks to avoid conflicting decisions on the same subject matter between member states and institutions of the European Union. Ryanair’s contention that the CMA had a duty to avoid making decisions that could conflict with a decision by the EC regarding Ryanair’s takeover bid for Aer Lingus was rejected. The CMA approached the issue by balancing several factors, including the lack of jurisdictional overlap between the EC and CMA and the practical effect of divestiture on Ryan’s ability to launch another takeover. There was no breach of duty in the divestiture order since CMA’s mandated steps would not prohibit Ryanair from making any bid which was cleared by the EC in the future.

Remedy. Finally, the CMA’s determination that a divestiture of all but five percent of the minority stake was the only effective remedy to prevent a substantial lessening of competition (SLC) was satisfied a legitimate aim and was proportionate, according to the court. In its analysis, the CMA determined that there was a SLC primarily on the basis of Ryan’s ability to impede Aer Lingus’ participation in a combination with another airline. Although potential combinations could take many forms, Divestiture was the only remedy which would cater to all possible forms of combination. The court concluded there was no flaw in the CMA’s approach.

Reactions to decision. In a statement released yesterday, the CMA welcomed the judgment by the Court of Appeal. The CMA group of members which had been carrying out the inquiry will evaluate how to proceed in light of the judgment.

Ryanair stated in a press release that it will appeal the decision to the U.K.’s Supreme Court. The dispute over the ruling continues as International Airlines Group (IAG), owner of British Airways, has proposed to take over Aer Lingus.

“Additionally, Ryanair has now requested a formal review by the CMA of its final report, and a withdrawal of the divestment remedy, in light of the recent IAG offers for Aer Lingus, which wholly disprove the CMA’s unsubstantiated claim that Ryanair’s shareholding somehow prevented other airlines from merging with or bidding for Aer Lingus,” said Ryanair spokesman Robin Kiely.

Companies: Ryanair Holdings Plc; Aer Lingus Group plc

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