CELEX: 31995M0560
Language: en
Date: 1995-05-11 00:00:00
Title: COMMISSION DECISION of 11/05/1995 declaring a concentration to be compatible with the common market (Case No IV/M.560 - EDS / Lufthansa) according to Council Regulation (EEC) No 4064/89 (Only the English text is authentic)

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31995M0560

COMMISSION DECISION of 11/05/1995 declaring a concentration to be compatible with the common market (Case No IV/M.560 - EDS / Lufthansa) according to Council Regulation (EEC) No 4064/89 (Only the English text is authentic)  

Official Journal C 163 , 29/06/1995 P. 0008

 COMMISSION  DECISION of 11/05/1995 declaring a concentration to be compatible with the common market (Case No IV/M.560  - EDS  /  Lufthansa) according to Council Regulation (EEC)  No 4064/89  (Only the English text is authentic).  The  paper version of the decision is available through  the sales offices of the Office of Official Publications of  the European Communities PUBLIC VERSION MERGER PROCEDURE ARTICLE 6(1)(b) DECISION To the notifying parties Dear Sirs, Subject:<ind> Case No IV/M.560  EDS / LUFTHANSA <ind>  <ind>  Notification  of 3  April  1995   pursuant  to Article 4 of Council Regulation No. 4064/89 1.<ind> The above operation involves the acquisition by  EDS Holding     GmbH     (EDS)    from    Deutsche     Lufthansa Aktiengesellschaft  (LH) of 25% of the shares  of  Lufthansa Systems GmbH, a newly created subsidiary of LH. 2.<ind> After examination of the notification the Commission has  concluded that the proposed operation falls within  the scope  of  Council Regulation No 4064/89 and does  not  give rise  to  serious  doubts as to its compatibility  with  the common market and the EEA Agreement. I <tab> THE PARTIES 3.<ind> EDS, which is a wholly owned indirect subsidiary  of General Motors Corporation, provides IT services, ie systems management,  systems  integration, systems  development  and consulting services.   4.<tab>  LH  is  an  air  transport company,  registered  in Germany. 5.<tab> Lufthansa Systems is currently responsible for  LH's internal IT service and production <tab> capacities.   II<tab> THE OPERATION 6.<ind>  The operation involves the acquisition by EDS  from LH  of  25%  of  the  shares of Lufthansa Systems,  a  newly created subsidiary of LH. The joint venture will operate  as a   systems   house   providing  IT  services,   which   are specifically  tailored to the needs  of  the  air  transport sector. III<tab> CONCENTRATION Joint Control 7.<ind>  EDS  will  acquire 25% of the shares  in  Lufthansa Systems.  The  Shareholders  Agreement  provides  that  both parents  are represented on the supervisory board (LH  <tab> 3,  EDS  1)  and that in important decisions (including  the annual  budget and annual <tab> business plan) unanimity  is required.  [Deleted as a business secret.  (In addition, the joint  venture  will  have two managing directors,  and  the contractual   arrangements  between  the  parent   companies provide  for  joint  control with respect  to  the  daytoday management.)] 8.<tab>  In light of the above, Lufthansa Systems is jointly controlled by EDS and LH. Full Function 9.<tab>  Lufthansa Systems will perform on a  lasting  basis all the functions of an autonomous <tab> economic entity and create a structural change in the market. 10.<ind>  The joint venture will have adequate resources  to carry out its business. The initial share capital amounts to DM  25 million. It has a full functioning IT division, <tab> contributed  by  LH.   The current number  of  employees  is 1,112; this figure is expected to rise with the increase  of third  party business. Lufthansa Systems will have the <tab> power to grant sublicences, to the extent that LH grants  it software licences.   11.<ind> Lufthansa Systems will provide services for LH,  LH subsidiaries  and third parties.  The fact  that  the  joint venture  will  rely almost entirely on sales to  LH  for  an initial  start  up period does not affect its full  function character.   Although  initially  Lufthansa  business   will account  for a large proportion of the joint venture's  work this  will  decrease and the parties intend that  the  joint venture will be geared to play an active role on the market. The  substantial financial contribution made by EDS for  its shareholding  in  the  joint  venture  ([Deleted;   business secret.] million DM) provides further evidence of this  fact and  serves  to  confirm that the joint venture  cannot   be considered  a  normal  outsourcing operation.   In  addition competitors  have confirmed that there is a substantial  and growing market for IT in the air transport industry, and  as can  be seen below (para 21) although some airline companies operate  their IT services in house, many others offer  such services  to third parties.  Lufthansa Systems is likely  to be  a  significant  player  in this  field  in  the  future. Furthermore  the  joint venture is expected  to  extend  its services to the travel industry in general.  Therefore  even if  LH remains the main customer of Lufthansa Systems in the medium  term, the joint venture's dependence on  its  parent will  only be temporary.  In addition, the services provided to  LH will be priced on an arm's length basis.  Prices will be renegotiated every year and shall be determined primarily by  a  comparison  with  market  conditions  for  comparable services.   12.<ind> In conclusion, Lufthansa  Systems  will perform  on  a  long lasting basis all the functions  of  an autonomouseconomic entity. Absence of Coordination 13.<ind>  LH will no longer be active in the joint venture's market,   having   transferred   all   its   external    and substantially all of its internal IT service and  production capacities  to  the joint venture.  Therefore  there  is  no scope  for coordination of competitive behaviour as  between the  parents.   This  is equally true  for  the  segment  of computer  reservation systems, where  LH  holds  a  minority stake  in Amadeus.  EDS has not been active in this segment. A   joint  venture  between  Amadeus,  EDS  and  Continental Airlines  for the marketing of Amadeus in North and  Central America, which has been created most recently, relates to  a different  product  market than  the  one  involved  in  the present operation. IV<tab> COMMUNITY DIMENSION 14.<ind>  The  operation  has  a  Community  dimension.  The worldwide turnover of all undertakings concerned amounted in 1993 to more than 5,000 million Ecu (General Motors: 118.035 million  Ecu;  LH:  9.157 million Ecu). The  Community  wide turnover  of  both  EDS  and LH exceeded  250  million  Ecu. Neither  of  the parties achieved more than  two  thirds  of their  aggregate Community wide turnover within one and  the same  Member  State [Correction:  Lufthansa does  have  more than   twothirds   of  its  Communitywide  turnover   within Germany.].  Nor did they have a turnover exceeding  Ecu  250 million in the territory of the EFTA States.  V<ind> COMPATIBILITY WITH THE COMMON MARKET Product and geographic market 15.<ind> Lufthansa Systems will provide IT services tailored to  the  requirements  of  airlines,  airports  and  related service  provides e.g. travel agents, cargo handling.  At  a later  stage, other travel and transport companies shall  be targeted.    The   services  include  the  development   and maintenance of software applications, data processing centre services,  network, services, decentralised data  processing services  and telecommunication services.  In the  field  of air    transport,   IT   services   include   for    example customercaresystems,  crew management and  business  process management (seat reservation, departure control, etc.).  The geographic scope of the joint venture is Europe, but may  be extended later on. 16.<ind>  The  product  market may  be  defined  as  the  IT services market as a whole, or may be subdivided in  several ways:        services/software;       systems       software products/application software products. In  previous  cases, the  Commission  has  recognised that  there  are  different segments within the IT sector with characteristics  such  as capital  investment  requirements,  role  of  brand   image, development  costs,  switching costs etc  [IV/M.112   EDS/SD Scicon  of  17.7.1991  and  in  particular,  IV/M.336    IBM France/CGI of 19.5.1993.]. A major distinction has been made between  IT services and IT software, the latter's   product market  being  application software and system software.  It may also be possible to identify a further submarket for  IT services in the travel and transport industry or even in the airline industry. Nonetheless, there is a certain degree  of substitutability,  e.g. between systems  software  products, which   are   readymade  packages,  and  systems  operations solutions which are individually tailored. 17.<ind>  It is not necessary in the present case to  decide if these segments constitute distinct product markets within the  meaning of the Regulation, as even on the basis of  the narrowest  market  definition the  parties  do  not  hold  a significant share in the market. 18.<ind>  With  regard  to geographic markets,  the  parties consider  that  the relevant market is at  least   European, except  where the close relationship with customers requires local  presence.  As  far  as IT services  for  the  airline industry  are  concerned,  customers  as  well  as   service providers operate on an international basis.  Although  much work  in  Europe and the US is conducted by the airlines  in house,  there is a demand for IT services from  airlines  in the  Middle  and Far East and South America.   However,  the precise  definition of geographic markets can be  left  open since  the  concentration  is not likely  to  raise  serious doubts  as to its compatibility with the common market  even on a national level.  Assessment 19.<ind>  The  IT  services  market  appears  to  be  highly fragmented. According to the parties no company  achieved  a share  of  more than 8% in 1993 on the general  IT  services market  in  Europe. LH's presence on the IT services  market has  been  negligible.  On the basis ofINPUT,  a  source  of market  data  for the IT industry used by the Commission  in the  abovementioned previous cases, EDS's market share  does not  exceed  2% which would equally be true if Germany  were the  relevant  geographic market. In  Germany,  IBM  is  the market leader followed by SiemensNixdorf, both these parties have market shares below 20%. 20.<ind> In the different segments and subsegments of the IT sector  as  set  out  above,  the  share  of  EDS  would  be distinctly  below  5  %; only in systems  management,  which forms part of IT services, EDS would achieve 10 % in Europe. Market  volume (about 82 billion US$ according to INPUT)  is expected  to grow significantly until 1998, with an  average annual growth rate of 10 % according to INPUT.  21.<ind> The IT market is characterised by large competitors such  as  IBM,  Cap Gemini Sogeti, Debis.  Some  IT  experts specialise in the air transport field selling IT services to third  parties besides their inhouse services; these include Air  France,  and Alitalia (through Alidata),  SAS,  British Airways  (through Speed Wing). The latter competitor  has  a share of third party business of substantially more than 50% in this market, operating on all continents.  There are also potential  competitors  on  this market,  including  Siemens Nixdorf.  IT services for the airline industry is considered by competitors to be a growth market. 22.<ind>  For the above reasons, the concentration will  not create  or  strengthen  a  dominant  position  in  the   EEA territory or a substantial part of it.   CONCLUSION 23<ind>  For  the above reasons, the Commission has  decided not  to  oppose  the notified operation and  to  declare  it compatible  with the common market and with the  functioning of   the   EEA  Agreement.  This  decision  is  adopted   in application  of  Article 6(1)(b) of  Council  Regulation  No 4064/89. For the Commission