CC requires Ryanair to sell shareholding in Aer Lingus down to 5 per cent
28 Aug 2013
Ryanair Holdings plc (Ryanair) will be required to sell its 29.8 per cent stake in Aer Lingus Group plc (Aer Lingus) down to 5 per cent. This will be accompanied by obligations on Ryanair not to seek or accept board representation or acquire further shares.
In its final report published today, the CC confirmed its provisional findings that Ryanair’s minority shareholding had led or may be expected to lead to a substantial lessening of competition between the airlines on routes between Great Britain and Ireland.
The importance of scale to airlines is clear from evidence of widespread industry consolidation in recent years. Against that background, the CC formed the view that Aer Lingus’s commercial policy and strategy was likely to be affected by Ryanair’s minority shareholding, in particular because it was likely to impede or prevent Aer Lingus from being acquired by, or combining with another airline.
The CC was also concerned that Ryanair’s minority shareholding was likely to affect Aer Lingus’s commercial policy and strategy by allowing Ryanair to block special resolutions, restricting Aer Lingus’s ability to issue shares and raise capital and to limit Aer Lingus’s ability to manage effectively its portfolio of Heathrow slots. Ryanair’s shareholding also increased the likelihood of Ryanair mounting further bids for Aer Lingus, with the associated disruption to Aer Lingus’s ability to implement its commercial strategy.
Simon Polito, CC Deputy Chairman and Chairman of the Ryanair/Aer Lingus Inquiry Group, said:
‘In light of the comments received in response to our provisional findings and in line with our usual practice, we have reviewed further all the evidence that we received. After careful consideration we confirmed our provisional view that Ryanair’s minority shareholding has resulted, or may be expected to result, in a substantial lessening of competition between the airlines.
‘In line with the recent decision of the European Commission prohibiting Ryanair from acquiring Aer Lingus, we recognize that Ryanair and Aer Lingus compete intensely for passengers travelling between Great Britain and Ireland, to the benefit of millions of passengers crossing the Irish Sea each year; and that competition between them is at least as intense now as it was when Ryanair first acquired its stake in Aer Lingus in 2006.
‘However, we consider that there is a tension between Ryanair’s position as a competitor and its position as Aer Lingus’s largest shareholder, and that Ryanair has an incentive to weaken its rival’s effectiveness as a competitor. Ryanair’s minority shareholding affects Aer Lingus’s commercial policy and strategy in various ways that could be crucial to Aer Lingus’s future as a competitive airline. We were particularly concerned about Ryanair’s ability, either directly or indirectly, to impede Aer Lingus from combining with another airline to build scale and achieve synergies to remain competitive.
‘Ryanair proposed various remedies to us in an attempt to address our specific concerns. In a dynamic and uncertain sector such as the airline industry, however, it is inherently difficult to design remedies that would cater for all eventualities. We concluded that the effective and proportionate remedy that would address our concerns was to require a partial divestment of Ryanair’s shareholding to 5 per cent, facilitated by the appointment of a Divestiture Trustee. Aer Lingus would then be free to take actions to maintain and strengthen its competitive position in the future for the benefit of passengers on routes between Great Britain and Ireland.’
The final report and all other information relating to the investigation are available on the inquiry home page.
Notes for editors
1. The CC is an independent public body, which carries out investigations into mergers, markets and the regulated industries.
2. The members of the Ryanair/Aer Lingus Inquiry Group are: Simon Polito (CC Deputy Chairman and Chairman of the Group), Roger Davis, Carolan Dobson and Professor Michael Waterson.
3. Ryanair initially acquired a stake in Aer Lingus in late 2006. In October 2006 Ryanair launched a public bid for the remaining shareholding in Aer Lingus. The European Commission investigated the public bid and decided to prohibit it in June 2007. In July 2010, the General Court upheld the decision and ruled that the European Commission did 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. Ryanair’s latest bid (in July 2012) for the remaining shareholding in Aer Lingus was prohibited by the European Commission on 27 February 2013. Ryanair lodged an appeal with the General Court against this decision on 8 May 2013.
4. The Enterprise Act 2002 empowers the OFT to refer to the CC completed or proposed mergers for investigation and report which create or enhance a 25 per cent share of supply in the UK (or a substantial part thereof) or where the UK turnover associated with the enterprise being acquired is over £70 million.
5. The OFT referred the inquiry to the CC on 15 June 2012. The CC’s inquiry was extended whilst Ryanair sought to challenge the CC’s jurisdiction in view of the European Commission’s investigation of its latest bid. The Competition Appeal Tribunal (in August 2012) and the Court of Appeal (in December 2012) both dismissed Ryanair’s challenges and the Supreme Court refused it permission to appeal further in April 2013. The CC restarted its investigation in March 2013.
6. Further information on this inquiry, including the terms of reference and other key documents, as well as on the CC and its procedures, can be obtained from the CC website at: www.competition-commission.org.uk.
7. Enquiries should be directed to Rory Taylor or Siobhan Allen or by telephoning 020 7271 0242.