CELEX: 32014M7056
Language: en
Date: 2014-03-18 00:00:00
Title: Commission Decision of 18/03/2014 declaring a concentration to be compatible with the common market (Case No COMP/M.7056 - USS / BA / EASYJET / MONARCH / CROWN SHAREHOLDER / NATS) according to Council Regulation (EC) No 139/2004 (Only the English text is authentic)

|[pic]                             |EUROPEAN COMMISSION                                                                                      |

Brussels, 18.3.2014
C(2014) 1894 final

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|To the notifying parties:                                              |
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Dear Sir/Madam,

Subject:    Case No COMP/M.7056 - USS / BA / easyJet / Monarch / Crown Shareholder/NATS
Commission decision pursuant to Article 6(1)(b) of Council Regulation No 139/2004[1]

    1) On 11 February 2014, the European Commission received a notification of  a  proposed  concentration  pursuant  to  Article  4  of  Council
       Regulation (EC) No 139/2004[2] by which the undertaking Universities Superannuation Scheme Limited ("USS") acquires within the meaning  of
       Article 3(1)(b) of the Merger Regulation indirect joint control of the undertaking NATS, together with British  Airways  ("BA"),  easyJet,
       Monarch and the Crown Shareholder, by way of purchase of shares.

    2) USS, BA, easyJet, Monarch and the Crown Shareholder are collectively referred to as the "Parties".

       THE PARTIES

    3) USS is the sole corporate trustee of the Universities Superannuation Scheme, which is a UK private sector pension  fund.  USS  invests  in
       both transport and utilities infrastructure, including airports, with a focus on mature, operating assets in OECD countries.

    4) BA, easyJet and Monarch are UK-based airline companies.

    5) The Crown Shareholder is the UK Secretary of State for the Department  for  Transport,  which  has  responsibility  for  setting  national
       aviation policy.

    6) NATS is active in the provision of air navigation services in the UK. It provides "en route" air  traffic  services  in  UK  airspace  and
       airspace managed by the UK in accordance with the terms of a license issued by the UK Secretary of State of Transport. NATS also  provides
       airport air traffic services and to a limited extent a range of other services such as consultancy and training.

    7) The Airline Group ("TAG") is a special purpose vehicle formed in 2001 by seven airline companies in order to acquire – and to hold – their
       respective equity interest in NATS. The acquisition by TAG of joint control, together with the Crown Shareholder, over NATS  was  reviewed
       and cleared by the Commission in 2001 in its case COMP/M.2315 The Airline Group / NATS (the "2001 Decision").

       THE OPERATION AND THE CONCENTRATION

1 Acquisition of joint control over TAG

    8) TAG is currently jointly controlled by the following seven airlines: (i) BA, (ii)  easyJet,  (iii)  Monarch,  (iv)  Thomas  Cook  Airlines
       Limited, (v) Thomson Airways Limited, (vi) Virgin Atlantic Airways and (vii) Deutsche Lufthansa AG[3].

    9) Pursuant to a sale and purchase agreement entered into on 18 November 2013 by Thomas Cook, Thomson, Virgin Atlantic, Lufthansa and USS[4],
       USS will acquire a 49.9% shareholding in TAG (the "Transaction"). The SPA broadly involves  Thomas  Cook,  Thomson,  Virgin  Atlantic  and
       Lufthansa each selling the overwhelming majority of their respective shares in TAG. BA, easyJet and Monarch will see no  change  in  their
       respective equity shareholdings in TAG as a result of the Transaction. Following the Transaction, USS will be the one new shareholder with
       a direct interest in TAG and an indirect interest in NATS.

10) The post-Transaction distribution of voting rights in TAG will be as follows:

|Shareholder                    |% holding                      |
|USS                            |[…]                            |
|BA                             |[…]                            |
|easyJet                        |[…]                            |
|Monarch                        |[…]                            |
|Lufthansa                      |[…]                            |
|Virgin Atlantic                |[…]                            |
|Thomson                        |[…]                            |
|Thomas Cook                    |[…]                            |

                       Source: Form CO, paragraph 96

   11) Under the Shareholders’ Agreement, a number of issues are listed as "Reserved Matters" in relation to the governance of  TAG  and  require
       the written approval of a "Super Majority" (i.e. a majority representing 75% or more of the shares in issue in TAG at any one  time).  The
       Reserved Matters include […][5].

   12) The effect of the requirement of a Super Majority on the Reserved Matters will be such that:
         – USS, by virtue of its 49.9% shareholding, is able to exercise its veto in respect of the Reserved Matters;
         – No other single shareholder in TAG alone has the power to exercise a veto in respect of the Reserved Matters (or any  other  matter),
           but any two of BA, easyJet and Monarch, if voting together, have the ability to exercise a veto.
         – None of Lufthansa, Virgin Atlantic, Thomson or Thomas Cook will have the power alone or together to exercise any veto[6].

   13) The Commission found in its 2001 Decision that the individual shareholders of TAG will have strong commonality of  interest  in  TAG  (and
       through it in NATS) and that each of the seven airline shareholders in TAG had the right to appoint one director to the board  of  TAG[7].
       The Parties submit that up to now, matters at TAG level have been agreed consensually by the airlines in board meetings of TAG  and  there
       has rarely been recourse to a vote. The present transaction brings  about  a  substantial  change  in  TAG's  shareholding.  USS  acquires
       interests from four airline companies, making it the largest shareholder in TAG and the only one able to block decisions requiring a super
       majority individually. Jointly with any two of the three airline companies keeping their pre-transaction shareholding, it could reach  the
       75% Super Majority and actively adopt motions of strategic importance to TAG. However, the airline shareholders share a  common  knowledge
       of the sector and have shown in practice a strong commonality of interest. The findings of the Commission in its  2001  Decision  have  in
       practice been confirmed. In addition, post-Transaction, only BA, easyJet and Monarch will have  the  right  to  each  appoint  one  voting
       director to the board of TAG. All these elements show that airline companies are likely to continue to act together within TAG.

   14) As a consequence, in view of the criteria set out in paragraphs 65 et seq. of the Commission's Jurisdictional  Notice[8],  the  Commission
       concludes that post-Transaction USS, BA, easyJet and Monarch will exercise joint control over TAG.

   15) In the 2001 Decision, the Commission found that the Crown Shareholder and TAG would exert joint control over NATS primarily because of the
       veto right on the budget of NATS[9]. The provisions of the Strategic Partnership Agreement that the  Commission  relied  on  in  its  2001
       Decision to establish joint control of NATS by TAG and the Crown Shareholder have remained the same[10] and therefore, it can be concluded
       that USS, BA, easyJet, and Monarch, all via TAG, together with the Crown Shareholder will exercise joint control over NATS.[11]

2 Full functionality of NATS

   16) In its 2001 Decision, the Commission found that NATS would perform on a lasting basis all  the  functions  normally  carried  out  by  air
       traffic control undertakings. NATS would also have a management  dedicated  to  its  day-to-day  operations,  and  would  have  access  to
       sufficient resources including finance, staff and assets in order to conduct its business activities. NATS would be an autonomous economic
       entity in commercial, financial and operational terms. Therefore, the Commission concluded that NATS would be fully-functional.  There  is
       no contemporaneous element putting this conclusion into question.

   17) The notified operation therefore constitutes a concentration within the meaning of Article 3(1)(b) of the Merger Regulation.

       EU DIMENSION

   18) The undertakings concerned have a combined aggregate world-wide turnover of more than EUR 5 000 million[12] (USS: EUR […]; BA  (IAG):  EUR
       18 117 million; easyJet: EUR 4 680 million; Monarch: EUR 799 million; NATS: EUR 1 096 million). Each of them has  a  EU-wide  turnover  in
       excess of EUR 250 million (USS: EUR […], BA (IAG): EUR […]; easyJet: EUR […]; Monarch: EUR […]; NATS: EUR […]) and  they  do  not  achieve
       more than two-thirds of their aggregate EU-wide turnover within one and the same Member State. The notified operation therefore has an  EU
       dimension[13].

       COMPETITIVE ASSESSMENT

1 Relevant markets: en route and airport air traffic services

   19) NATS provides "en route" air traffic services in UK airspace in accordance with the terms of a licence issued by the  Secretary  of  State
       for Transport. NATS also provides airport air traffic services.

   20) None of the Parties is active in the provision of such services. However, BA, easyJet, and Monarch buy both "en  route"  and  airport  air
       traffic services from NATS. There is, therefore, a vertical relationship between the activities of NATS and those airlines having a  stake
       in NATS.

1 Product markets

   21) "En route" services consist of air traffic controllers giving instructions to aircraft "en route" over national airspace  (as  opposed  to
       those in the vicinity of airports), so that those aircraft are safely separated to agreed international standards.

   22) Airport air traffic services relate to control of air traffic within a defined radius[14] of an airport, and  comprise  airport  approach,
       landing and take-off. These services are alternatively designated as "terminal air navigation services".

   23) In its previous decision practice, the Commission left open whether "en route" and  airport  air  traffic  services  constituted  separate
       product markets.[15]

   24) For the purposes of this decision, it can be left open whether "en route" and airport air traffic services belong to the same market.

2 Geographic markets

   25) The Commission has previously considered that the market for "en route" traffic services were not larger than national[16].

   26) As regards the airport air traffic services, it envisaged the possibility  that  each  individual  airport  would  constitute  a  separate
       relevant market[17] while it also left open whether a wider EEA-market could be envisaged.[18]

   27) Ultimately, in both cases, the Commission can leave the question open as the Transaction would not lead to serious doubts irrespective  of
       the precise market definition.

2 Competitive assessment

   28) The Transaction will not lead to any horizontal overlaps between the activities of the Parties and NATS.

   29) NATS provides on an exclusive basis "en route" services in the UK airspace and airspace managed by the UK and therefore has a  100%  share
       of supply. As regards airport air traffic control services, NATS holds a share of [50-60]% of supply at  UK  airports  (on  the  basis  of
       aircraft traffic movements) as at November 2013.

   30) The Transaction therefore leads to vertically affected markets because of NATS' activities upstream on  the  market  for  "en  route"  and
       airport air traffic services and its airline shareholders as end-users of these services in their capacity as providers of  air  transport
       services to and from the UK. USS has no controlling interest in any upstream or downstream business.

   31) The Commission assessed in its 2001 Decision whether the airline shareholders could favour NATS as the selected supplier at those airports
       where they are active and consolidate or strengthen NATS' leading position as  an  airport  air  control  service  provider.  Second,  the
       Commission assessed whether the vertical integration between NATS and its airline shareholders could lead to any anti-competitive  effects
       in particular by way of price and  non-price  discrimination  against  other  airlines.  The  Commission  analysed  whether  the  vertical
       integration would have created incentives for the airline shareholders to use NATS as a tool to reduce the  competitiveness  of  competing
       airlines and to strengthen their position on the downstream air transport markets between the UK and other  destinations.  The  Commission
       concluded in its 2001 Decision that none of these negative effects would materialise post-Transaction.

   32) The Parties claim that there has been no relaxation of the rules and regulatory constraints since the Commission's 2001 Decision and  that
       the conclusions of the 2001 Decision would remain valid in all aspects.

   33) The Commission sought to ascertain whether the relevant factors relied on by the Commission in its 2001 Decision are still prevalent today
       and whether the current Transaction would bring about any elements which would justify a change of the  Commission's  conclusions  in  the
       2001 Decision as regards these elements.

   34) None of the respondents to the Commission's current market investigation considered that the Transaction brings about any  elements  which
       would justify a change of the conclusion in the 2001 Decision. Furthermore, the outcome of the Commission's current  market  investigation
       was that the majority of the relevant features which make unlikely any discrimination in favour of the airline  shareholders  are  equally
       prevalent today. In particular, "en route" charges are subject to ex ante regulations, established by national authorities  in  line  with
       the principles and formula set up by the Commission Implementing Regulation 391/2013 (the "charging Regulation") . Furthermore, as regards
       airport air traffic services, NATS currently charges airport operators and not airlines. Lastly, any systematic discrimination as  regards
       flight plans of carriers or any manoeuvres to cause delays at landing would be impossible to  maintain  because  of  the  role  played  by
       Eurocontrol and the transparency of the system.

   35) The Commission further considers that the Transaction is likely to reduce the risks of foreclosure by  reducing  the  number  of  airlines
       exerting indirect joint control over NATS, and thus the number of beneficiaries of a potential foreclosure strategy: Thomas Cook, Thomson,
       Virgin Atlantic and Lufthansa would be replaced by USS.  As  USS  is  a  non-strategic  investor  with  purely  financial  interests,  any
       foreclosing of airlines which are not shareholders of NATS would run counter to its interests. Moreover, the fact that these four airlines
       give up their control rights over NATS can also be interpreted as a sign that these airlines do not fear any  discriminating  by  NATS  in
       favour of the remaining airline shareholders.

   36) Lastly, USS recently acquired a non-controlling stake of 8.65% in Heathrow Airport Holdings  (HAH),  which  operates  Heathrow,  Aberdeen,
       Glasgow and South Hampton. The Commission considered whether USS could use its control over NATS to make NATS discriminating in favour  of
       USS' other airport shareholdings. However, USS has only negative control over NATS and can therefore not positively impose any strategy on
       NATS. In addition, it would be the only beneficiary of a strategy in favour of HAH,  which  would  not  only  be  against  the  commercial
       interests of the other shareholders but also in breach of the non-discrimination provisions contained in  the  NATS  licence  to  operate.
       Finally, respondents to the market investigation discarded any such risk.

   37) The Commission therefore considers that the present Transaction does not raise any  serious  doubts  as  to  its  compatibility  with  the
       internal market.

       CONCLUSION

   38) For the above reasons, the European Commission has decided not to oppose the notified operation and to  declare  it  compatible  with  the
       internal market and with the EEA Agreement. This decision is adopted in application of Article 6(1)(b) of the Merger Regulation.

For the Commission

(signed)
Joaquín ALMUNIA
Vice-President

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[1]   OJ L 24, 29.1.2004, p. 1 ('the Merger Regulation'). With effect from 1 December 2009, the Treaty on the Functioning of the  European  Union
('TFEU') has introduced certain changes, such as the replacement of 'Community'  by  'Union'  and  'common  market'  by  'internal  market'.  The
terminology of the TFEU will be used throughout this decision.
[2]   OJ L 24, 29.1.2004, p. 1 (the "Merger Regulation").
[3]   See also the 2001 Decision.
[4]   Including USS Sherwood Limited, a wholly owned subsidiary of USS.
[5]   […]
[6]   Pursuant to the provisions of the Shareholders Agreement, they will no longer be able to nominate a director to the board  of  TAG,  either
alone or together. Therefore, the mechanism through which commonality of interest could previously have been achieved between the seven  airlines
no longer exists.
[7]   The 2001 Decision, recital 7.
[8]   Commission Consolidated Jurisdictional Notice under  Council  Regulation  (EC)  No  139/2004  on  the  control  of  concentrations  between
undertakings, OJ C 95, 16 April 2008, p.1.
[9]   2001 Decision, recital 10.
[10]  The Strategic Partnership Agreement provides that the adoption of any new business plan of NATS or any departure or change in  the  current
business plan (or strategy set out in it) requires the approval of the directors appointed  by  each  of  the  Crown  Shareholder  and  TAG.  The
business plan covers the following matters: safety and risk management, the  service  and  investment  plan,  strategy  for  non-operational  and
corporate divisions, long-term air traffic provision with the UK Ministry  of  Defence,  performance  management  and  business  development.  In
addition, if the adoption of any part of any new business plan or any amendment to any current business  plan  involves  a  requirement  for  the
provision of funding to NATS or any third party by the shareholders of NATS, the approval of each of  the  Crown  Shareholder  and  TAG  must  be
obtained. Lastly, the making of any investment or the liquidation of any investment made by NATS in any other person  or  business  requires  the
approval of the directors appointed by each of the Crown Shareholder and TAG.
[11]  The Crown Shareholder considers that he does not possess such rights as to confer control over the commercial  operations  of  NATS.  While
the Crown Shareholder does have the right to appoint Partnership Directors to the board of NATS,  the  Crown  Shareholder  considers  that  these
directors are required to act independently and is forbidden from representing the Crown's wider interests and as such are  concerned  only  with
the Crown's shareholding in NATS. Furthermore, according to the Crown Shareholder, the consent of the Partnership Directors is required  in  very
narrow circumstances i.e. where either the business plan involves a requirement for the provision of funding to NATS or any third  party  by  the
Shareholders. However, as described in footnote 10, the veto rights of the Crown Shareholder are not limited to pure minority  protection  rights
but are rights which relate to the strategic business behaviour of NATS and furthermore, the Crown Shareholder has  the  right  to  nominate  the
Partnership Directors; these are elements that sustain the finding of joint control over NATS. In any event, the question of  whether  the  Crown
Shareholder actually jointly controls NATS or not is not relevant for the purpose of determining jurisdiction of  the  European  Commission  over
the assessment of the Transaction under the Merger Regulation.
[12]  Turnover calculated in accordance with Article 5(1) of the Merger Regulation and the  Commission  Consolidated  Jurisdictional  Notice  (OJ
C95, 16.04.2008, p1).
[13]  A waiver was granted to the Crown Shareholder as to the provision of the turnover figures as in any event the thresholds  of  Article  1(2)
of the Merger Regulation are met.
[14]  In the UK, the scope of the control stretches up to 15 miles (about 24.1 km).

[15]  Case COMP/M.2315, The Airline Group / NATS, recital 15, Case COMP/M.7008 Aena Internacional/AXA PE/LLAGL, recitals 15 and 20.
[16]  Case COMP/M.2315 The Airline Group / NATS, recital 16, Case COMP/M.7008 Aena Internacional/AXA PE/LLAGL, recitals 15 and 20.
[17]  Case COMP/M.2315 The Airline Group / NATS, recital 16.
[18]  Case COMP/M.7008 – Aena Internacional/AXA PE/LLAGL, recital 19.

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 In the published version of this decision, some information has been omitted pursuant to Article 17(2) of Council Regulation (EC)  No  139/2004
 concerning non-disclosure of business secrets and other confidential information.  The  omissions  are  shown  thus  […].  Where  possible  the
 information omitted has been replaced by ranges of figures or a general description.

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