Posted on: 28 August 2013 by Mark Howells
The UK Competition Commission (CC) confirmed that Ryanair will be required to sell its 29.8% stake in Aer Lingus Group down to a level of 5% as well as placing obligations on Ryanair not to seek or accept board representation or acquire further shares.
In its final report, 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 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 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, the CC argued.
Aer Lingus Group welcomed the report which also called for the appointment of a divestiture trustee to oversee the process of sale of Ryanair’s shareholding in Aer Lingus, taking the divestiture process out of Ryanair’s hands.
Colm Barrington, chairman of Aer Lingus, commented, “The final report by the UK Competition Commission confirms that the minority shareholding in Aer Lingus held by our closest competitor, is anti-competitive and contrary to the interests of the approximately 14 million passengers who fly on routes between the island of Ireland and Great Britain. The CC should be commended on its thorough investigation and we look forward to the implementation of its findings.
“It was unacceptable that our principal competitor was allowed to remain on our share register with a shareholding of 29.82% and interfere with our business despite the European Commission blocking both Ryanair’s first hostile takeover attempt six years ago and its most recent hostile takeover attempt earlier this year.
“Aer Lingus remains focussed on financial and operational performance and our recent results for the first half of 2013 demonstrate that Aer Lingus continues to deliver an excellent overall performance to the benefit of its shareholders,” noted Barrington. “The implementation of the Competition Commission’s decision that Ryanair must reduce its anti-competitive shareholding will position Aer Lingus for future growth and opportunities which will make it an even stronger competitor in the market.”
Ryanair immediately announced that it will appeal the CC’s final report, which it said “wrongly found that Ryanair, through minority shareholding in Aer Lingus, ‘had led or may be expected to lead to a substantial lessening of competition between the airlines on routes between Great Britain and Ireland’. This baseless claim is manifestly disproven by 7 years of evidence and by the European Commission’s recent (Feb 2013) ruling that competition between Ryanair and Aer Lingus has ‘intensified’ since 2007.”
Ryanair’s chief executive, Michael O’Leary argued, “This report by the CC is bizarre and manifestly wrong, but also entirely expected. From the first meeting with the CC it has been clear to us that [committee members] Simon Polito’s and Roger Davis’s 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’s 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 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,” O’Leary declared.
“While Ryanair is one of the UK’s largest airlines, Aer Lingus has a tiny presence in the UK, serving just six routes to the Republic of Ireland, a traffic base that has declined over the past three years and now accounts for less than 1% of all UK air traffic,” he continued. “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 CC’s failure to accept this finding is a breach of its legal duty of sincere co-operation 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,” O’Leary confirmed.