Irish
UK Competition Commission says Ryanair must cut Aer Lingus stake to 5%
By Finfacts Team
Aug 28, 2013 - 2:35 PM

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Ryanair will be required to sell its 29.8% stake in Aer Lingus Group plc (Aer Lingus) down to 5%. 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 UK Competition Commission (UKCC) 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.

It said the importance of scale to airlines is clear from evidence of widespread industry consolidation in recent years. Against that background, the UKCC said it 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 UKCC said it 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, UKCC 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%, 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."

Ryanair said the UKCC’s "manifestly unjust ruling demonstrates that it did not conduct any fair investigation and that it has now merely announced what was its pre-determined conclusion. Ryanair will appeal the UKCC’s unlawful ruling to the UK Competition Appeal Tribunal. In any event, until the completion of Ryanair’s appeal to the EU courts against the European Commission’s February 2013 prohibition decision, the UKCC cannot lawfully impose any remedies on Ryanair."

Ryanair’s Michael O’Leary said: “This report by the UKCC is bizarre and manifestly wrong but also entirely expected. From the first meeting with the UKCC it has been clear to us that Simon Polito’s and Roger Davis’ minds had been made up in advance and no truth or evidence was going to get in the way of their story. This prejudicial approach to an Irish airline is very disturbing, coming from an English government body that regards itself a model competition authority.

Polito’s and Davis’ ignoring of evidence, their conduct of a manifestly unfair investigation, their omission of all the substantial body of evidence that conclusively disproves their case, and their rejection of Ryanair’s unprecedented undertakings (which patently address their three invented future concerns), all in a misguided pursuit of their pre-determined conclusion, demonstrate that this process was not a competition investigation but merely a corrupt and politically biased charade.

While Ryanair is one of the UK’s largest airlines, Aer Lingus has a tiny presence in the UK, serving just 6 routes to the Republic of Ireland, a traffic base that has declined over the past 3 years and now accounts for less than 1% of all UK air traffic. This case, involving two Irish airlines where one (Aer Lingus) accounts for less than 1% of the UK’s total air traffic and concerns very few UK consumers, is yet another enormous waste of UK taxpayer resources from a body which took no action whatsoever when the two main UK airlines (BA and bmi) merged. It would appear to be a case of one rule for the UK airlines but an invented set of rules for two Irish airlines.

In February 2013 the European Commission found that competition between Ryanair and Aer Lingus has 'intensified' since 2007. The UKCC’s failure to accept this finding is a breach of its legal duty of sincere cooperation between the UK and the EU competition authorities and will form the basis for Ryanair’s appeal against this bizarre and manifestly unsound ruling, which our lawyers will lodge with the Competition Appeal Tribunal in the coming weeks.”

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