UK: I Want To Break Free

In August 2013, the UK's Competition Commission (CC) found that Ryanair's presence on the Aer Lingus share register impeded Aer Lingus from participating in industry consolidation, and ordered a sell-down to 5%. Ryanair had acquired most of its 29.82% stake in 2006 as part of a failed bid for Aer Lingus, and resisted all efforts since then to force it to exit its rival's share register. Ryanair's appeal against the CC's report was dismissed by the Competition Appeal Tribunal (CAT) in March 2014.

The indication that Aer Lingus would soon be able to cut loose from Ryanair awoke the interest of International Airlines Group (IAG, the parent company of British Airways, Iberia and Vueling), which approached Aer Lingus with a merger proposal in December 2014. Ryanair responded with a fresh appeal in the CAT seeking to reopen the CC report in the light of IAG's approach, while its appeal against the CAT in the earlier litigation was still ongoing.

In a cascade of judgments and decisions in July this year, Aer Lingus was finally able to unshackle itself from Ryanair. Adding these to the history since 2006 brings to 30 the total number of judgments and decisions in the Aer Lingus/Ryanair saga.

The history

Since Ryanair began building its 29.82% shareholding in 2006, it launched three bids for its Irish rival. Ryanair's appeal against the first prohibition was dismissed (Case T-342/07) but it was able to hold onto its minority stake (Case T-411/07), the General Court forming the view that article 8(4) EUMR did not empower the Commission to order divestiture of a noncontrolling stake, even though it had been integral to the concentration which had been prohibited.

The second bid (2008) was abandoned on antitrust grounds, and the third, in 2012, was again vetoed by DG Competition. Ryanair's Luxembourg appeal against the second prohibition decision was still pending at the time of the IAG bid.

The Office of Fair Trading (OFT) had begun investigating the minority shareholding situation in September 2010 after the failure of the appeals arising from DG Competition's first prohibition decision. The three years that elapsed before the CC's August 2013 report reflected Ryanair's determined litigation strategy: it sued to prevent the OFT investigating but failed; and the OFT belatedly referred the case to the CC for an in-depth review. Within days, though, Ryanair launched its third bid and sued to suspend the CC investigation; again it failed but time was lost. So the litigation against the CC's belated August 2013 report was the third Ryanair application in the CAT; and the challenge to reopen the report in view of the IAG bid was the fourth separate time that Ryanair asked the CAT to upend the UK investigation.

For more on this history see our earlier CLI articles "Irish air traffic control", CLI 16 April 2013; "Tyranny of the minority", CLI 15 October 2013; and "Running out of fuel?", CLI 17 March 2015.

CMA's "material change in circumstances" decision and order

Just as the Court of Appeal was ruling on the CC's report, Ryanair asked the Competition and Markets Authority (the CMA, the successor to the CC and OFT) to reconsider the CC's report on the basis of the Enterprise Act's opaque "material change in circumstances" (MCC) provision, section 41 EA. Ryanair argued that IAG's interest in Aer Lingus undermined the report's conclusion that Ryanair deterred potential M&A partners for Aer Lingus.

The CMA, after consulting, decided that there had been no MCC. IAG's approach was consistent with the report's finding that Ryanair's presence as a shareholder was likely to impede or prevent Aer Lingus combining with other airlines: IAG's approach reflected the prospect of Ryanair being forced out and was indeed conditional upon Ryanair's exit. In fact, the episode illustrated precisely that Ryanair was in a position to determine whether a bid would succeed or fail. When issuing its MCC decision, the CMA also adopted a final order to compel the sell-down.

Ryanair appealed the MCC decision and the order (Case [2015] CAT 14). Against the background of the running IAG bid timetable, the CAT brought the case on to a hearing 15 days from the application, and gave judgment dismissing the application 12 days later.

  • Ryanair criticised the CMA for imposing the order while the original appeal against the CC's report was not yet resolved. This ground was withdrawn against reassurance as to the timing of the intended next steps in the divestiture process.
  • Ryanair claimed that the MCC decision and final order were unlawful because the CMA applied the wrong MCC test. The CMA should not have analysed whether there was an MCC but should directly have re-examined the proportionality of the sell-down remedy in light of the circumstances at the time of Ryanair's MCC request. The CAT found that section 41(3) EA only requires that the CMA executes its report unless there has been an MCC.
  • Ryanair argued that the MCC decision was irrational because IAG lodged a bid while the CC's report had predicted that Aer Lingus would not be able to enter into any M&A transaction. The CAT considered that the MCC question is one for the CMA to evaluate, which it did effectively. The Tribunal also pointed to IAG's bid being conditional upon Ryanair's exit.

IAG bid

IAG's bid for Aer Lingus itself required antitrust approval from DG Competition and the US Department of Justice (DoJ):

DG Comp

DG Competition's investigation (M.7541 IAG/Aer Lingus) focused on the parties' overlap on the Dublin-London and Belfast- London routes, both of them flying specifically from Heathrow. While recognising the city pair analysis from past cases (Ryanair's problematic London overlap with Aer Lingus had been a Stansted/Heathrow issue), the Commission found a particular closeness of competition between the Heathrow-based operations of British Airways and Aer Lingus. Notably this was remedied by slot divestitures at Gatwick, reflecting the interaction of Heathrow and Gatwick within the London airport system.

IAG also offered so-called special prorate agreements with advantageous terms for long-haul carriers wanting to attract Aer Lingus feed from Irish airports for certain long-haul destinations to/from Heathrow, Gatwick, Manchester and Amsterdam. Finally, the parties addressed a concern on the Dublin/Shannon- Chicago routes by offering a similar advantageous prorate agreement to allow a competitor to build up a sustainable service on those routes. Phase I clearance was given.

The DoJ

The DoJ aligned its investigation with DG Competition in timing terms and closed its investigation without action.

Other issues

Distinct from the EU and US antitrust approvals, the CMA had to bless IAG as a suitable purchaser of the Ryanair stake for purposes of the UK sell-down. The CMA's final order required that the purchaser of the Ryanair share did not raise any fresh competition issues. As a practical matter, this was sufficiently addressed via the EUMR clearance.

29-hours to takeoff

These multiple strands all came together on 14-15 July 2015 when takeoff lights flashed green from all directions, one after the other (see diagram below):

  • The Supreme Court refused Ryanair permission to appeal in relation to the CC's original report.
  • DG Competition gave Phase I clearance.
  • The CAT upheld the MCC decision and final order.
  • The CMA granted Ryanair permission to sell its shares to IAG.
  • The DoJ closed its investigation.
  • The CAT refused Ryanair permission to go to the Court of Appeal.

After legal tussles lasting nine years, all this came together in a 29-hour period. And the following day, Ryanair abandoned its resistance, voting in favour of the IAG takeover at a shareholders meeting of Aer Lingus. IAG formally completed the Aer Lingus transaction in September 2015. Ryanair has since withdrawn its remaining litigation in Luxembourg (against DG Competition's second prohibition decision) and abandoned an application to the Court of Appeal for permission to contest the CAT's July ruling on the CMA's MCC decision and order (after protesting loudly in July that it would continue both cases as a matter of principle).

Conclusion

With the sound of Aer Lingus's delayed takeoff still receding into the distance, a full retrospective is a task for a future article. Many novel points of law have been explored along the way that other litigants have not thought to pursue. But one instant lesson: a tactical and well-funded litigant (low-cost maybe in other areas, but not in fighting losing battles) has scope to postpone the inevitable for a very long time.

Another lesson: the European Commission's contemplated minority shareholding reform should at least address the gap in article 8(4) EUMR, which disabled it from expelling Ryanair as an adjunct to the original 2007 prohibition. That prohibition was not effective to maintain effective competition, which remained impeded for long years, as described in the CC report and confirmed by the UK courts.

Previously published in Competition Law Insight

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
 
In association with
Related Topics
 
Related Articles
 
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Mondaq Free Registration
Gain access to Mondaq global archive of over 375,000 articles covering 200 countries with a personalised News Alert and automatic login on this device.
Mondaq News Alert (some suggested topics and region)
Select Topics
Registration (please scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.

Disclaimer

The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.

General

Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions