EUROPEAN COMMISSION C(2016) 4149 final



To the Notifying Party Dear Sir/Madam, Subject:Case M.7965 – World Fuel Services Corporation / Certain aviation fuels assets belonging to Exxon

Commission decision pursuant to Article 6(1)(b) of Council Regulation No 139/2004 and Article 57 of the Agreement on the European Economic Area (1)On 24 May 2016, the European Commission received notification of a proposed concentration pursuant to Article 4 of the Merger Regulation by which World Fuel Services Corporation ("WFS") will acquire sole control within the meaning of Article 3(1)(b) of the Merger Regulation of the aviation fuels business ("the Business") belonging to ExxonMobil Corporation ("Exxon") at certain airports worldwide, including 25 airports in the EEA ("the Transaction"). WFS is designated hereinafter as the "Notifying Party" and both WFS and the Business as "the Parties". 1.THE PARTIES (2)WFS provides aviation, marine and ground transportation fuel products and related services worldwide. Its main business activity is supplying fuels under the reseller business model. (3)Exxon's main business is energy, involving, among other things, exploration, production and sale of crude oil, natural gas and petroleum products. (4)The Business comprises Exxon's activities as into-plane supplier of aviation fuel at 25 airports in the EEA: Bordeaux, Nice, Paris-Le Bourget, Anklam, Berlin Tegel, Bremen, Cologne, Dresden, Dusseldorf, Frankfurt, Leipzig, Muenster, Naples, Olbia Costasmeralda, Alghero Fertilia, Catania Fontanarossa, Milan Linate, Palermo Punta Raisi, Rome Fiumicino, Liverpool, Birmingham, Manchester, Bournemouth, Luton and Southampton (the "Relevant Airports"). 2.THE OPERATION AND CONCENTRATION (5)WFS will acquire sole control over the Business by way of purchase of assets, therefore the Transaction constitutes a concentration according to Article 3(1)(b) of the Merger Regulation. The Transaction does not include any of Exxon's upstream activities in the refining and supply/transportation of aviation fuel to the Relevant Airports, nor does it include Exxon's downstream reseller business which will remain with the seller. 3.EU DIMENSION (6)The undertakings concerned have a combined aggregate world-wide turnover of more than EUR 5 000 million (WFS: EUR 32 969 million; the Business [...]). Each of them has an EU-wide turnover in excess of EUR 250 million (WFS: [...]; the Business [...]), but they do not achieve more than two-thirds of their aggregate EU-wide turnover within one and the same Member State. (7)The notified operation therefore has an EU dimension within the meaning of Article 1(2) of the Merger Regulation. 4.MARKET DEFINITION 4.1.Introduction (8)There are three types of suppliers providing aviation fuels at airports, namely, into-plane suppliers, throughputters and resellers.

(9)Into-plane suppliers typically supply the largest quantities of aviation fuels to aviation customers and other smaller suppliers active at the airport. They usually purchase fuel ex-refinery or ex-import terminal. At the airports, into-plane suppliers have direct access to the distribution infrastructure themselves or through joint-ventures in which they are shareholders, on the basis of a concession agreement entered into with the airport operator. (10)Throughputters supply aviation fuels to aviation customers and resellers. Like into-plane suppliers, they usually purchase fuel ex-refinery or ex-import terminal. However, throughputters do not control fuelling infrastructure at the airport. Instead, they have an agreement with into-plane suppliers to use their on-airport field storage facility and into-plane supply services. (11)Resellers supply aviation fuels to various customers at the airport. They usually acquire fuel "at wingtip", i.e. once it has passed through the infrastructure of the airport and is readily available to be supplied to the customers. Subsequently, as the fuel is delivered to the aircraft, under a contract between the reseller and the end customer, the reseller re-sells the fuel to the end customer. Resellers have no physical role in the delivery of the aviation fuel at the airport, which is undertaken by a throughputter or into-plane supplier on their behalf. (12)Customers purchasing aviation fuels at the Relevant Airports can also be broken down into different categories: a.scheduled aviation customers are airlines operating scheduled air services and scheduled air transport operations. Large airlines passenger services and most air freight services are included in this category; and b.general aviation customers operate mainly non-scheduled air transport. They include private and corporate aircraft, flight schools, air ambulances and aerial fire-fighters. (13)The Business is active as an into-plane supplier at all of the affected airports. WFS is active as a reseller at the majority of the airports and as a throughputter in the airport of Bremen. 4.2.Product market definition 4.2.1.The Commission's prior practice (14)In previous decisions, the Commission has defined a market for the retail supply of aviation fuels (or into-plane supply) consisting of the supply of aviation fuels at individual airports under a contract between suppliers active in that airport and the airlines. Fuel is supplied based on arrangements with servicing companies that operate airport fuel infrastructure. 4.2.2.The Notifying Party's view (15)The Notifying Party agrees that there is a market for the retail supply of aviation fuels. However, it claims that the market should be further segmented based on the different types of suppliers that are active at the airport. The Notifying Party considers that into-plane suppliers and throughputters would belong to the same market given that they own the fuel and have access to airport infrastructure, whereas resellers would belong to a different product market since they only acquire title to the fuel at wingtip and do not have access to infrastructure. (16)The Notifying Party also argues that resellers supply different types of customers from into-plane suppliers and throughputters: while the latter supply mainly scheduled aviation customers, resellers' focus is on general aviation customers. According to the Notifying Party, scheduled aviation customers use the services of resellers only for diverted flights and in cases when they are not deemed creditworthy by into-plane suppliers/throughputters. Furthermore, according to the Notifying Party, into-plane suppliers and throughputters make their sales based on contracts awarded through tender procedures, whereas resellers sell mostly through aviation fuel cards and one-off contracts. 4.2.3.The results of the market investigation and the Commission's assessment (17)The market investigation revealed a further segmentation is possible between into-plane suppliers and throughputters on the one hand, and resellers on the other hand, as suggested by the Notifying Party. (18)Most competitors noted that resellers operate under a different business model from into-plane suppliers/throughputters and that they do not focus on the same customer groups. (19)In terms of infrastructure, into-plane suppliers are fully integrated players acquiring fuel ex-refinery and managing facilities at the airport. They control every stage of the process, from the acquisition of fuel until delivery to the customer's aircraft. They are present at the airports and operate airport infrastructure under agreements with the airport operator granting access and use of airport ground and facilities. While throughputters do not control the airport infrastructure themselves, they use it on the basis of a service agreement with into-plane suppliers. Like the latter, they are vertically integrated in that they source the fuel at refinery or import terminal and they retain ownership of it until it is delivered to their customers. (20)Resellers do not own or operate any infrastructure at the airport and only acquire ownership of the fuel at wingtip. They operate under an agreement with the into-plane supplier according to which into-plane suppliers deliver the fuel to resellers' customers on their behalf. As such and because they are not directly present they do not need to be authorised by the airport operator. (21)During the market investigation both scheduled aviation and general aviation customers indicated that at a first stage they invite to their tender procedures all the major suppliers active at the airport. The tenders are usually organised annually and contracts are awarded on an airport-by-airport basis. (22)The majority of customers also indicated that the main criterion for selecting the supplier is price. Some of them further explained that because into-plane suppliers and throughputters source the fuel ex-refinery and operate the fuel farm (e.g. storage, supply facilities, fuelling vehicles etc.) at a given airport they are able to offer more competitive prices. Resellers usually source their aviation fuels from into-plane suppliers or throughputters therefore their offering is not as competitive.

(23)However, into-plane suppliers and throughputters focus on scheduled aviation customers, to whom they sell large volumes of fuel, based on yearly contracts awarded through tenders. While into-plane suppliers and throughputters also sometimes supply general aviation customers, these constitute a marginal part of their sales. General aviation customers procure smaller volumes and do not offer the same financial guarantees as scheduled aviation customers and are thus not as attractive to into-plane suppliers. Moreover, into-plane suppliers and throughputters generally do not have the specialized resources and ability necessary to serve these customers (credit risk assessment capacity, administrative resources to deal with numerous small customers etc.). For this reason, even though into-plane suppliers and throughputters are able to supply the fuel itself at a lower price, they are not as competitive in respect of the other costs associated with supplying general aviation customers. A large into-plane supplier explains that "[it] does not focus on these small customers because such activity requires a lot of work, people, administrative activities, etc. and those customers represent very small volumes, therefore it is not its main interest. [It] prefers having contact with resellers than with general aviation directly." This is confirmed by a reseller competing with WFS, which states that "the reasons why general aviation customers prefer to work with resellers are that oil companies' size limits their ability to contract with customers buying only small volumes of fuel, or they perceive it as not worth their while to do so, or do not wish to provide credit to such customers." (24)Resellers focus more on general aviation customers. When they sell to scheduled aviation customers, it is mainly in case of ad-hoc or diverted flights, or of customers with high credit risk. While resellers can participate in tenders organised by scheduled aviation customers for large volumes of fuel, they are not as competitive as into-plane suppliers and throughputters, from whom they source the fuel. Resellers make sales mainly on an ad-hoc basis and through aviation fuel cards, which have the advantages of conferring customers more flexibility as they allow fuelling without the need to conclude a contract for a specific location, time and fuel quantity in advance. As one airline explained "the fuel card is too expensive. The fuel card is interesting only to general aviation companies that have higher prices and differentials. Scheduled airlines do not use fuel cards." This is confirmed also by an into-plane supplier: "General aviation customers do not need significant amounts of fuel and their demand is generally ad-hoc. They also have higher credit risk. General aviation customers buy fuel mainly through fuel cards. Scheduled aviation customers contract on an annual basis, lift on a regular basis, and have good credit positions. On the contrary general aviation customers use aviation fuel cards which [our company] does not provide." (25)Resellers also require less stringent credit conditions from customers than into-plane suppliers and throughputters. One of the competitors explained that "there is nothing to prevent Resellers from bidding for scheduled aviation contracts, but their strength is in managing risk (and in supplying general aviation customers therefore)". (26)For these reasons, the Commission considers that, in respect of the airports affected by the Transaction and analysed in the market investigation, resellers belong to a different relevant product market than into-plane suppliers and throughputters. 4.3.Geographic market definition 4.3.1.The Commission's prior practice (27)In previous Commission decisions, the Commission concluded that the geographic scope of the market for the retail supply of aviation fuels is limited to each specific airport. 4.3.2.The Notifying Party's view (28)The Notifying Party, for the purpose of this notification, agrees with the Commission's precedents in which the Commission defined the geographic market for the retail supply of aviation fuel at airport level and has submitted market data on that basis. 4.3.3.The Commission's assessment (29)During the market investigation the majority of customers confirmed that they source aviation fuels on airport by airport basis and they refuse packages comprising supply offers combining several airports. Therefore the Commission does not see any reasons to deviate from its previous decisions and considers that the relevant geographic market definition for both the into-plane supplier/throughputter market and the reseller market is at airport level. 5.COMPETITIVE ASSESSMENT 5.1.Horizontal effects 5.1.1.Affected markets (30)Considering that resellers belong to a separate relevant market from into-plane suppliers and throughputters, the Parties' activities give rise to a horizontal overlap in the airport of Bremen where WFS acts as a throughputter. 5.1.2.The Notifying Party's view (31)The Notifying Party submits that the Transaction will not raise any competition concerns in relation to the Bremen airports. The Notifying Party argues that other into-plane suppliers/throughputters, such as BP and Total, are present in Bremen and will still effectively compete. Moreover, any additional supplier wishing to enter Bremen airport has no restriction in doing so given that Bremen is an "open-access" airport, where entry of new suppliers is granted by the airport operator. Finally, the Notifying Party points out that in view of the limited market share of WFS as a throughputter, the proposed Transaction will not affect competition at the airport. 5.1.3.The Commission's assessment (32)The Business has a market share of [90-100]% of the into-plane supplier/throughputter market at Bremen airport, while WFS accounts for [0-5]%. Although the Business has a strong position on this market, the increment brought about by WFS is very small. BP and Total are also active as throughputters, each with [0-5]% of the market, and Shell has recently signed a throughput agreement to become the fourth throughputter at this airport. (33)Bremen is an "open access" airport, which means that the into-plane supplier at this airport is obliged to give access to its infrastructure to any throughputters that demand it, at prices set by the airport operator. This implies that throughputters have low barriers to expanding their supply of aviation fuel, as confirmed also in the market investigation, or to entering the market, as suggested also by the fact that Shell is now preparing to enter.