CELEX: 31991M0130
Language: en
Date: 1991-09-13 00:00:00
Title: COMMISSION DECISION of 13.09.1991 declaring a concentration to be compatible with the common market (Case No IV/M.130 - DELTA AIR LINES / PAN AM) according to Council Regulation (EEC) No 4064/89 (Only the English text is authentic)

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31991M0130

COMMISSION DECISION of 13.09.1991 declaring a concentration to be compatible with the common market (Case No IV/M.130 - DELTA AIR LINES / PAN AM) according to Council Regulation (EEC) No 4064/89 (Only the English text is authentic)  

Official Journal C 289 , 07/11/1991 P. 0000

 COMMISSION DECISION of 13.09.1991 declaring a concentration to be compatible with the common market  (Case No IV/M.130 - DELTA AIR LINES / PAN AM) 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 Registered with advice of delivery To the notifying parties Dear Sirs, Subject :<ind> Case No. IV/M.130 - Delta Air Lines / Pan Am <ind> <ind> <ind> Your notification pursuant to Article 4 of Council Regulation  No. 4064/89  1.<ind> The above mentioned operation, notified on 9th August 1991, concerns the asset purchase agreement  entered into by Delta Air Lines Inc. (Delta) with Pan Am Corporation Co. and its subsidiaries Pan American  World Airways Inc. and Pan Am Shuttle Inc. (Pan Am) by virtue of which Delta will acquire the North Atlantic  air transport business of Pan Am and related interests.  2.<ind> After examination of the notification, the Commission has concluded that the notified operation falls  within the scope of application of Council Regulation No. 4064/89 and that it is compatible with the common  market.  I.<ind> THE AGREEMENT  3.<ind> According to the purchase agreement, the acquisition will comprise:  <tab> -<ind> Pan Am's route authorities to provide air services between the United States and Europe and  beyond, including mainly routes from New York to different European destinations, as well as the  Miami/London, Detroit/London and Washington/Frankfurt authorities. <tab> -<ind> Pan Am's Frankfurt hub operation. <tab> -<ind> Pan Am's Boston - New York - Washington shuttle operations. <tab> -<ind> Corresponding national and international slots, leaseholds and equities in a certain number of  aircrafts, as well as related interests.  4.<ind> The purchase agreement is part of a wider transaction concluded between the parties in the context of a  Chapter 11 US Bankruptcy Code Procedure, under which Pan Am filed for the purpose of reorganisation at the  beginning of January 1991. Delta will in addition assume part of Pan Am's existing liabilities and acquire a 45%  share in the remaining reorganised Pan Am company that will operate the Latin American division and its  Miami operation base.  <ind> The deal was approved by the US Bakruptcy Judge on August 12, 1991 and cleared under the Hart-Scott- Rodino Act on August 9, 1991.  II.<ind> THE PARTIES  5.<ind> Delta Air Lines is one of the major American air carriers providing scheduled air transport mainly in  the US (86% of its traffic distribution) but also on international routes. At the end of the financial year 1990/91  Delta served 158 cities in the US and 34 international destinations.   <ind> Delta's transatlantic air transport business presently has a relatively limited scope. It operates 13 routes to  destinations in the EC, from four hubs in the United States, these being Atlanta, Cincinnati, Dallas / Fort Worth  and Orlando. Delta is furthermore one of the largest shareholders in Worldspan, a computer reservation system  (CRS) based in the US.  6.<ind> Pan Am's air transport activities are mainly in international scheduled passenger transport (76% of its  traffic distribution). In 1991 Pan Am and its subsidiaries served 41 cities in the US and 75 international  destinations, amongst them 15 destinations in the EC. Pan Am's flight operations are based mainly in New York  and Miami in the US and Frankfurt in Europe.  III.<ind> CONCENTRATION  7.<ind> The transfer of a number of assets related to the transatlantic business of the Pan Am group of  companies as described under I to the ownership and control of Delta constitutes a concentration within the  meaning of Article 3(1)b of Regulation EC 4064/89.  IV.<ind> COMMUNITY DIMENSION  8.<ind> The concentration has a Community dimension within the meaning of Article 1(2) of the Regulation.  The aggregate worldwide turnover of Delta and the turnover relating to the parts of Pan Am which are the  subject of the present transaction exceeded 8 billion ECU in the financial year 1990/91.  9.<ind> As to the aggregate Community-wide turnover of the parties, Article 5(1) subparagraph (2) of the  Regulation states that turnover in the Community or in a Member State shall comprise services  provided to  clients in the Community or in this Member State. In applying this provision to the air transport services here  concerned, the following three methods of allocating turnover could reasonably be considered: one possibility  would be to attribute the operating revenues deriving from transatlantic air transportation services to the country  of destination, this being the final destination point outside the home country of the airline (for example, in the  case of a flight New York / Paris / New York by a US carrier the turnover would be allocated to France). A  second option could be to allocate the revenues in a 50%/50% ratio to the country of origin and the country of  final destination, so as to take into account the cross border character of the service provided. A third alternative  would be to attribute the air transport revenues to the Member State where the ticket sale occurred.  <ind> In the present case the choice of the appropriate method can be left open since in each of the three  alternatives Delta and the part of Pan Am that is being purchased achieve a Community-wide turnover that  exceeds 250m ECU. The parties do not achieve more than two-thirds of their Community-wide turnover within  one and the same Member State.  V. <ind> COMPATIBILITY WITH THE COMMON MARKET  <tab> The relevant market  10.<ind> The main impact of the transaction which is relevant in the context of the present appraisal will be in  the scheduled air transportation services for passengers between the US and the Community. These scheduled air  transportation services comprise the different services between the various departure points in the US on the one  hand and in Europe on the other hand (city pairs).  11.<ind> International air transportation in the North Atlantic is carried on through a certain number of points  of departure and destination between the two continents (gateways). In the US there are 25 gateway cities to  Europe, of which New York is by far the most important (generating traffic of 12 million passengers in the  North Atlantic in 1990), followed by Chicago, Los Angeles, Boston, Miami, Atlanta, Washington (ranging from  2 to 1 million passengers).  <ind> In Europe there are more than 40 gateways, of which London is the one that generated the most traffic to  the US (8.7 million passengers in 1990), followed by Frankfurt, Paris and Amsterdam (ranging from 3.6 to 1.5  million) and then Zurich, Rome, Madrid, Brussels, Shannon, Copenhagen and Milan (between 1 million and  500.000 passengers).  <ind> The vast majority of the city pair combinations are channelled through the abovementioned main  gateways. The result is thus the existence of a bundle of routes between those gateways that have the common  feature of carrying on transatlantic air transportation services.  12.<ind> Under these circumstances, the relevant market could be defined in a number of different ways :  <tab> -<ind> each route connecting the gateways might be regarded as a distinct market, <tab> -<ind> a bundle of such routes might be considered as a relevant market to the extent that there is  demand-side substitutability between certain routes. For example, a flight London/New York may be substituted  by Paris/New York or Amsterdam/New York and vice-versa. In this sense, the most important gateways with a  certain degree of substitutability between them (London, Frankfurt, Paris, Amsterdam, Brussels, Zurich and  Copenhagen) account for about 75% of all the scheduled air transport services between the US and Western  Europe. This degree of substitutability may vary depending on the city pairs in question.  <ind> The correct delimitation of the relevant market would require considerable study as to the actual demand- side substitutability, particularly in the light of the continued existence of regulatory barriers and route  limitations.  13.<ind> In the present case the precise definition of the relevant market can be left open since, in neither of the  above alternatives, would the operation create or strengthen a dominant position as a result of which competition  would be significantly impeded within the common market.  <tab> Assessment  14.<ind> Presently a number of carriers compete in the transatlantic air transportation services. In July 1991  some 38 carriers operated scheduled flights between the US and Western Europe, 28 of which offered a daily  transatlantic service.  15.<ind> The acquisition comprises : 30 route authorities between New York and different European  destinations, the routes Detroit / London, Miami / London and Washington / Frankfurt, as well as 14 routes from  the Frankfurt hub to several destinations in Europe and beyond. Pan Am no longer had any presence in the  important New York/London route, after its acquisition by United Airlines prior to this transaction.  16.<ind> On the basis of the narrow definition as described above, as a result of the transaction there will be no  overlap between the parties on individual city pairs and consequently, no addition of market shares, since Delta  only operates 13 routes to European destinations from its four gateways in the US (Atlanta, Cincinnati, Dallas- Fort Worth and Orlando).  17.<ind> All market share data provided by the parties in their notification relate to capacity. This takes account  of the fact that international air transport is subject to various restrictions in market entry and capacity  depending on the bilateral agreements existing between the different states. In addition, the number of flights  and seats that each airline offers are directly related to demand. Therefore, these figures would not change  significantly if market shares were calculated on the basis of the revenue derived from the number of passengers  carried and miles travelled, as most carriers have similar load factors. Under these circumstances capacity can be  considered to be an adequate indicator to describe the market position of the parties and their competitors.  18.<ind> Regarding a wider definition of the market, after the concentration the parties will account for about  16% of the overall US/ Western Europe scheduled air transportation traffic (according to the figures of July  1991). The bundle of routes - described in point 12 - which may be regarded as substitutable in relation to the  routes concerned by the present transaction constitutes about 75% of this traffic. Considering only the routes  comprised in this bundle, the combined market share of the parties after the concentration would not exceed  25%.  19.<ind> Although after the concentration Delta will be the carrier with the highest market share, it will be  exposed to a large number of strong competitors with significant presence in the overall transatlantic air traffic,  namely American Airlines, British Airways and TWA (with around 10% each), followed by Lufthansa, United  Airlines, Air France and KLM (ranging between 7 and 4%).  20.<ind> There is a certain degree of complementarity between the routes that Delta and Pan Am operate.  Therefore, an important effect of the acquisition is that Delta will be able to link its extensive domestic network  system with the new transatlantic routes, thus providing a much higher number of online services to the trans- atlantic passengers than those Pan Am could offer. In addition, the New York and Frankfurt hub will give Delta,  besides its four gateways in the US, an important base to develop new online services between the US and  Frankfurt and beyond.  <ind> Therefore, Delta will have the competitive advantage of being able to attract many passengers in need of  those online services within the US, which cannot be provided by the European carriers.  21.<ind> This competitive advantage is not however limited to Delta, but common to all the large American  carriers over their European competitors. Given the present market structure, it cannot be considered that this  increase in competitive potential which Delta will achieve through the transaction is sufficient to conclude that it  amounts to the creation of a dominant position of this company.  <ind> Furthermore, air transport patterns are changing with the liberalisation process, which is expected to  result in new possibilities of linkage between the different gateways in Europe and further destinations, thus  giving new market opportunities to the European carriers.  22.<ind> Regarding the access that Delta will have to the important New York hub, it will be competing there  with more than 30 carriers, among them British Airways and American Airlines.  23.<ind> As to the possible vertical effects that could result from the takeover in relation to Delta's interest in  the CRS Worldspan, in the light of the above facts it can reasonably be excluded that they would lead to the  creation or strengthening of a dominant position of this company.  24.<ind> Certain competitors have complained to the Commission that certain practices concerning the  operation of the Worldspan CRS system in the US, combined with the use of code sharing and frequent flyer  programmes, create imbalances between US and European airlines on the transatlantic routes. Even though these  questions may be  relevant under Articles 85 and 86 of the EEC Treaty, in so far as they amount to a restriction  of competition or an abuse of a dominant position within the meaning of these provisions, they are not pertinent  in the context of the present decision.  <tab> Conclusion  25.<ind> Taking into account the low level of the combined market share resulting from the concentration and  the importance of the other competitors in the market, the proposed concentration does not create or strengthen a  dominant position as a result of which effective competition would be significantly impeded in the common  market or a substantial part of it.  For the above reasons the Commission has decided not to oppose the notified concentration and to declare it  compatible with the common market. This decision is adopted in application of Article 6(1)b of Council  Regulation No. 4064/89.  For the Commission,