Belfast International Airport Limited and Belfast City Airport Limited: A report on the merger contemplation

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Summary

On 1 August 1995 the Secre-tary of State for Trade and Industry asked the MMC to investigate and report on a merger situ-ation, as defined in the Fair Trading Act 1973 (the Act) arising from the contem-plated acquisi-tion by Belfast Interna-tional Airport Limited (BIA) of Belfast City Airport Limited (BCA). The terms of reference are at Appendix 1.1.

Prior to privatization Belfast International Airport (the International Airport) was operated by Northern Ireland Airports Limited (NIAL). NIAL was privatized on 20 July 1994 by means of a management and employee buy-out. BCA is a wholly-owned subsidiary of Short Brothers PLC (Shorts) which is in turn owned by Bombardier Inc (Bombardier), a Canadian company. BCA operates Belfast City Airport (the City Airport).

BIA made an unsolicited conditional offer to acquire BCA on 2 May 1995. Shorts has told us that BCA is for sale and that it will be seeking bids from a number of parties, includ-ing BIA. BIA has confirmed that if it is cleared to bid again for BCA, it intends to do so.

As a result of the contemplated merger, BIA would increase its share of airport services in Northern Ireland-an area which meets the criterion of constituting a substantial part of the UK-from about 63 per cent to about 89 per cent, satisfying the requirements for our investigation under the Act.

The overlap between the Interna-tional Airport and the City Airport (the Belfast Airports) is almost wholly on domestic scheduled flights, which account for about 80 per cent of Northern Ireland airport passenger services. Six domestic routes are presently served by both airports. Of these routes, three (Manchester, Birmingham and Glasgow) have substantial volumes of traffic from each of the two Belfast airports.

We are in no doubt that the Belfast airports have sought to compete vigorously under separate ownership. We are also clear that the airlines are influenced in their choice of airport by that competition, and that competing airports encourage competition between airlines. We should not expect competition between the airports to continue under joint ownership. Choice of airport might remain but much would depend on how BIA acted in practice as regards the City Airport.

We would expect the loss of competition between the airports to result in higher airport charges than would apply in the absence of the contemplated merger; a reduction in competition between airlines; and arising from these the likelihood of a reduction in routes and services offered by airlines and/or an increase in air fares.

BIA is in our view unlikely to encourage the airlines to expand services from the City Airport beyond its existing capacity while there remains significant spare capacity at the International Airport. As a result we would expect airlines and passengers over time to enjoy less choice with the Belfast airports under common control than they would if the City Airport remained independent: an indepen-dent owner would have a greater incentive to develop the City Airport to its full potential.

We have carefully considered the potential benefits arising from the contemplated merger but believe them to be outweighed by the detriments to competition and choice set out in paragraphs 1.7 and 1.8. We therefore conclude that the merger may be expected to operate against the public interest and recommend that it should be prohibited.

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