The purpose of merger review is to prevent mergers which would result in a substantial lessening of competition in the relevant market. Flexibility has been shown in the EU and in the Irish Merger Control regimes in conditionally clearing qualifying mergers subject to certain commitments from the parties. Merger conditions imposed by the European Commission (“the Commission”) and the Irish Competition and Consumer Protection Commission (“CCPC”) usually include a review clause allowing such commitments to be modified or waived where they are no longer necessary or if a change in circumstances occurs.

Deutsche Lufthansa AG v European Commission

The acquisition of Swiss Airlines by Lufthansa under the EU Merger Regulation was rendered binding by the Commission in 2005 subject to certain conditions. These conditions were imposed because the Commission had concerns regarding the lack of incentive for other airlines to compete once the transaction had closed. The conditions related to fare commitments for certain Zurich-Stockholm and Zurich – Warsaw flight routes until a new air service provider begun operations on those routes. The agreed proposal included a clause which stated that the commitments could be reviewed or waived if there were exceptional circumstances or based on long-term market evolution.

In 2013, Swiss and Lufthansa submitted a request to the Commission seeking a waiver of the commitments. However this request was rejected by the Commission in 2016.

Decision of the General Court – May 2018

In May 2018, the Court held that the Commission made an error of assessment in its decision to refuse to waive the price fare commitments regarding the Zurich-Stockholm route and held that the Commission failed to fulfil its duty carefully to examine all the relevant information and make relevant enquiries.

The Court stated that attention must be drawn to i) the termination of the Joint Venture Agreement between Lufthansa and SAS ii) a change in the Commission’s policy and iii) an increase in competition between Swiss airlines and other airlines. In particular the Court stated that the removal of agreements regarding SAS and LOT of Star Alliance (the global airlines alliance) which had resulted in extensive co-operation, appeared to be capable of removing the competition problems indicated in the Commission’s decision and justified the waiver of certain merger commitments.

The court also found that the Commission did not take into account the applicant’s undertaking to terminate the Bilateral Alliance Agreement with Lufthansa and SAS, that there was a substantial market change on the Stockholm route and the Commission did not make an adequate analysis of the impact of the Codeshare Agreement[1] on competition between Swiss and SAS.

The Commission failed to make enquiries or to conduct necessary investigations in order to determine whether there was competition between Swiss and SAS/LOT. Therefore, the commission made a manifest error of judgment in failing to take into account all the relevant information and the rejection of the waiver was not justified.

Conclusion

In Ireland, the CCPC has shown flexibility in conditionally clearing mergers. This has been done by embracing more diverse solutions to competition problems including the divestment of assets (Newsaccess, Panda Green and Esso decisions), the release of customers from fixed term contracts (Newsaccess), confidentiality and merger notification commitments (Dalata decision) and amending unreasonably restrictive covenants to what is necessary to protect the transfer of goodwill (Crinkle Fine Foods, Lee & Company, Musgrave Limited).

Waivers of commitments may be justified in certain circumstances. The Swiss Lufthansa case provides a gauge of what constitutes appropriate merger conditions by the CCPC and the Commission and serves as a reminder of the investigations which must be made to effectively analyse the competitive effects of merger commitments for mergers which are conditionally cleared.

We would be happy to assist companies concerned about the impact of these matters. If you want any information in relation to any of the above, please contact the Commerical team at O’Flynn Exhams. 

[1] Aviation business arrangement in which two or more airlines share the same flight.

ARTICLE BY: VICTORIA O”BRIEN