4 – 10 October 2013
ISSUE 41
EU Competition
& Regulatory
Legal and policy developments at the EU level
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Antitrust
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If at first you don’t succeed… : Aegean / Olympic
acquisition cleared at the second attempt under
the ‘failing firm’ defence
BACKGROUND
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On 9 October 2013, the European Commission adopted a decision under the EU
Merger Regulation approving the proposed acquisition by Aegean Airlines of Olympic
Air. Aegean is a Greek airline based at Athens International Airport providing air
passenger services to over 50 international and domestic destinations. Olympic is
another Greek airline based at Athens International Airport providing air passenger
services to approximately 30 destinations, mainly in Greece.
The decision followed an in-depth Phase II investigation initiated on 23 April 2013.
The Commission had blocked a previous attempted merger between the parties
in 2011, following a similar Phase II investigation.1 In both instances, Aegean
argued that the acquisition should be cleared, notwithstanding that on multiple
air passenger routes within Greece the parties were the only operators, on the
grounds that Olympic was a failing firm likely to exit the market in any event. The
Commission was unconvinced by these failing firm arguments in 2011, but has
now cleared the proposed acquisition on these grounds in light of the poor and
deteriorating financial position of Olympic, and that of the Greek domestic air
passenger market generally.
The Commission remains concerned however by the potential for abuse on routes
where the merged group will enjoy a monopoly. It has stated that it will work with
the Greek Competition Commission to monitor carefully the future conduct of
Aegean in light of its dominant position in the Greek air passenger market.
1
Case No COMP/M.5830 – Olympic / Aegean Airlines. The parties appealed the case to the General Court in
Luxembourg, and that appeal was still pending at the time the Commission started investigating the new
merger proposal. However, the parties applied to the Court to withdraw their appeal, and on 10 September
2013 the General Court issued an Order removing the appeal from the register.
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LEGAL FRAMEWORK
The so-called ‘failing firm’ defence is set out in the Commission’s Horizontal Merger Guidelines which provide that
where the deterioration in competitive market structure after a concentration would result even if the transaction
had not occurred, the Commission may approve a concentration reducing the number of competitors in the
market. The failing firm defence is exceptional in nature and, in practice, only rarely successful. Within the last 20
years, in only three previous cases has the Commission concluded that all the criteria of the failing firm defence
were met: Kali + Salz/MDK/Treuhand (1993), BASF/Eurodiol/Pantochim (2001) and Nynas/Shell/Harburg Refinery
(2013).2 The Commission conducted a full Phase II investigation in all of these cases.
A successful failing firm defence requires the notifying parties to establish that:
(a) the failing firm would in the near future be forced out of the relevant market because of financial difficulties, if
not taken over by another undertaking;
(b) there is no less anti-competitive purchaser or alternative course of action, as may be demonstrated by the fact
that various other scenarios have been explored without success; and
(c) in the absence of the merger, the assets of the failing firm would inevitably exit the market. In the case of a
merger between the only two players in a market, this may justify a merger-to-monopoly on the basis that the
market share of the failing firm would in any event have accrued to the other merging party.
THE COMMISSION DECISION
During its investigation, the Commission determined Aegean was Olympic’s closest competitor in the Greek
domestic air passenger market. Following the acquisition, Aegean would become the only significant domestic
airline. There are currently competitive overlaps between Aegean and Olympic on seven domestic routes, five
of which are served only by them. The Commission concluded that entry into these markets by other airlines is
unlikely as potential entrants see more profitable opportunities elsewhere and seek to avoid the domestic Greek
market in light of the country’s economic difficulties.
From 2009 to 2012, the economic problems in Greece have seen a drop of 26% in demand for domestic air
passenger transport from Athens (6.1 million to 4.1 million passengers per annum); a decline of another 6.3%
has continued into the first half of 2013. Olympic has also reduced in size in recent years: in 2011 it operated 32
planes, including 15 jets; today it operates just 14 turboprop planes and no jets. Olympic has never been profitable
since its privatisation in 2009 and has depended on the financial support of its sole shareholder, Marfin Investment
Group (MIG). MIG has now decided to withdraw this support.
The current weakness of Olympic and the domestic air passenger market contrasts with the position in 2011 when
the Commission initially blocked the proposed acquisition. In 2011, Aegean and Olympic accounted for over 90%
of the domestic market and there were 17 routes with competitive overlaps, on nine of which Aegean and Olympic
were the only operators on routes from Athens. Olympic also continued to enjoy the financial support of its parent,
2
See also EU Competition and Regulatory Newsletter, Issue 37
02
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MIG. The Commission was therefore unconvinced in 2011 that Olympic would necessarily exit the market at that
time or that there was no less anti-competitive alternative than an acquisition by Aegean.
In light of the weakening position of both Olympic and the domestic Greek market, the Commission now considers
that, absent the merger with Aegean, Olympic would be forced to exit the market in the near future and Aegean
would capture its current market share. As no other purchasers have shown an interest in acquiring Olympic or its
assets and brand, there is no less anti-competitive purchasers than Aegean. The Commission has therefore decided
to clear the proposed acquisition on the basis of the failing firm defence.
ANALYSIS
The Aegean/Olympic II decision is interesting on several grounds. It is the first acquisition in the air transport sector
to receive clearance under the failing firm defence – which means that Ryanair/Aer Lingus is now the only airline
merger to have been prohibited by the Commission.3
It is also, following the clearance decision in Nynas/Shell/Harburg Refinery, the second decision in 2013 to clear an
acquisition on failing firm grounds. This raises the question of whether, in light of the current economic downturn,
the Commission is becoming more receptive to this once rarely successful defence.
That said, it appears that the propinquity of these recent decisions is nothing more than an coincidence. The
decision in Aegean/Olympic II depends largely on the specific situation Olympic faces in its domestic air passenger
market: it has taken Aegean and Olympic two attempts to obtain clearance for this acquisition, with a sustained
deterioration in the position of Olympic, and the Greek air passenger market generally, having significant influence
on the Commission’s decision.
In contrast, the Commission was unconvinced by the failing firm arguments in International Airlines Group/BMI
(2012) – despite accepting that the first two criteria of the defence were satisfied – on the basis that BMI’s assets
would not inevitably exit the market in the absence of the acquisition; instead, the Commission found that, in light
of the shortage of take-off and landing slots at Heathrow Airport, BMI would have been highly attractive to other
competitors in the event of an insolvency. There is nothing to suggest in Nynas/Shell/Harburg Refinery or Aegean/
Olympic II that the Commission is applying the criteria of the failing firm defence any more leniently than has
historically been the case.
SOURCES
Press Release IP/13/361 – Aegean/Olympic II
Horizontal Merger guidelines (OJ C 31/5, 05.02.2004)
Case No COMP/M.4439 – Ryanair/Aer Lingus
3
The Commission prohibited Ryanair’s first attempted acquisition of Aer Lingus in 2007 following a Phase II investigation; that prohibition decision was
upheld by the General Court on 6 July 2010. The Commission prohibited a further attempted acquisition in 2013, again following a Phase II investigation;
Ryanair’s appeal against this second prohibition decision is now pending before the General Court.
03
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Case No COMP/M.6663 – Ryanair/Aer Lingus III
Case T-342/07 – Ryanair Holdings plc v European Commission
Case T-260/13 – Ryanair plc v Commission
Case No COMP/M.5830 – Olympic/Aegean Airlines
Case T-202/11 – Aeroporia Aigaiou Aeroporiki and Marfin Investment Group Symmetochon v Commission
Case No COMP/M.6447 – International Airlines Group/BMI
Case No COMP/M.6360 – Nynas/Shell/Harburg Refinery
Case No COMP/M.308 – Kali + Salz/MDK/Treuhand
Case No COMP/M.2314 – BASF/Eurodiol/Pantochim
04
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4 – 10 October 2013
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Merger Control
Notifications
1. Thermo Fisher Scientific/Life Technologies (Case
M.6944, 07.10.2013).
Phase II Clearance
6. Aegean /Olympic II – The Commission has,
following an in-depth investigation, decided to
approve the acquisition of Olympic Air by Aegean
Airlines. Further details are provided in this week’s
article (IP/13/927, 09.10.2013).
2. Simplified procedure case
–– KNB/UWI/Mitsui/Medini Iskandar Malaysia
(Case M.6954, 09.10.2013).
Phase I Clearances
3. Clearance with undertakings
–– Refresco Group/Pride Foods – The European
Commission has cleared the proposed
acquisition of Pride Foods, the UK fruit juice
bottler, by Dutch company Refresco. The
clearance is conditional upon the divestment
of one of Pride Food’s production and bottling
plants in Germany. The Commission had
concerns in relation to private label bottling
for supermarkets in France, Germany and
Belgium, in particular that an important
competitor in fruit juices, juice drinks, nectar
and still drinks bottled in aseptic PET would
have been eliminated from the market.
The commitments offered by the merging
companies address these concerns (Case
M.6924, IP/13/913, 04.10.2013).
4. Unconditional clearance
–– AENA Internacional/AXA PE/London Luton
Airport (LLAGL) (Case M.7008, MEX/13/1010,
10.10.2013).
5. Unconditional clearance: simplified procedure
–– DSM R&D Solutions/Maastricht UMCHolding/Device Company JV (Case M.6979,
MEX/13/1007, 07.10.2013).
Antitrust
7. Delivering corporate oral statements at DG
Competition – The Commission has issued
updated guidance on the delivery of oral corporate
statements made in relation to an application
for leniency. The guidance note covers how to
make an appointment with DG Competition, the
requirements for the meeting itself (including
that oral statements be ‘clear, factual and to the
point’), and the requirements for accuracy in audio
files and transcripts of oral statements (Delivering
oral statements at DG Competition, 08.10.2013).
State Aid
8. Commission v Italy – The Court of Justice (“ECJ”)
has ruled that Italy has not taken all measures
necessary to recover State aid unlawfully provided
to Ixfin SpA in 2005. The Italian company
manufactures electrical and optical equipment
and, subsequent to the government guarantee
which was given as a result of its financial
difficulties in 2004, went into insolvency in
2006. Italy was at this point requested by the
Commission to supply detailed information on the
steps that it was taking to recover the amounts
paid out to Ixfin, in order to prove that the
guarantee had been granted in line with EU State
aid rules. However, it was later alleged that Italy
had instead provided the company with further
financial support during a court procedure aimed
at rescue. The Commission accordingly opened
an investigation against Italy and concluded that
05
EU COMPETITION & REGULATORY
4 – 10 October 2013
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the guarantee had been unlawfully granted. Italy
subsequently still failed, however, to recover the
amounts required under this decision, and the
case was therefore referred to the ECJ for nonimplementation of the Commission’s recovery
decision. The ECJ has ruled that Italy should have
ensured fulfilment of the decision within four
months of notification, and that it had failed both
to take all the measures necessary to do so and
to inform the Commission of the steps that it had
taken (C-353/12, Commission v Italy, judgment of
10.10.2013).
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