CELEX: 31995M0551
Language: en
Date: 1995-07-25 00:00:00
Title: COMMISSION DECISION of 25/07/1995 declaring a concentration to be compatible with the common market (Case No IV/M.551 - ATR / BAe) according to Council Regulation (EEC) No 4064/89 (Only the English text is authentic)

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31995M0551

COMMISSION DECISION of 25/07/1995 declaring a concentration to be compatible with the common market (Case No IV/M.551 - ATR / BAe) according to Council Regulation (EEC) No 4064/89 (Only the English text is authentic)  

Official Journal C 264 , 11/10/1995 P. 0008

 COMMISSION DECISION of 25/07/1995 declaring a concentration to be compatible with the  common market (Case No IV/M.551 - ATR/BAE) 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)(a) DECISION To the notifying parties Subject :<ind> Case No IV/M.551 - ATR/BAe <ind> <ind> Notification of 21.06.1995 pursuant to Article 4 of Council Regulation No 4064/89 1.<ind> On 21 June 1995, the Commission received a notification concerning the establishment of a  new joint venture company combining the regional aircraft activities of Aérospatiale, British  Aerospace and Finmeccanica. After examination of the notification the Commission has concluded  that the notified operation falls outwith the scope of application of Council Regulation No. 4064/89. I.<ind> THE PARTIES 2.<ind> British Aerospace plc (BAe) is a UK public limited company whose principal activities are  in aerospace - both defence and non-defence related. It has regional aircraft activities in turboprops  (Jetstream) and regional jets (Avro). BAe is not controlled by any other company. At 1 March 1995,  the largest shareholder held approximately 10% of the shares. 3.<ind> Aérospatiale SNI is a French company active in a range of high technology products  including aircraft, helicopters, satellite systems and missile systems. 99.9% of Aérospatiale's shares  are held by the French state either directly or through other state controlled entities. 4.<ind> Finmeccanica is an Italian engineering company active in aerospace, defence systems,  energy, transport and automation. Alenia is a division of Finmeccanica active in the aerospace and  defence systems industries. Finmeccanica is controlled by IRI, a joint stock company wholly owned  by the Italian State which has interests in a variety of sectors including steel, telecommunications,  banking and the manufacture of telecommunications equipment.  5.<ind> Alenia and Aérospatiale have placed their regional aircraft activities into a Groupement  d'Intérêt Economique (GIE) - Avions de Transport Regional (ATR) owned 50% each. II.<ind> THE OPERATION 6.<ind> The transaction involves the creation of a new joint venture which will contain their  regional aircraft businesses: for BAe - Jetstream and Avro; and for Aérospatiale and Alenia - ATR.  The joint venture agreement envisages the merger of all new aircraft activities (which will initially  be feasibility studies for a new large turboprop aircraft and new regional jet aircraft [Deleted;  business secret.] and to integrate immediately the parties' marketing, sales and customer support  activities for existing aircraft) and to consider further integration of existing aircraft activities. <tab> Joint control 7.<ind> The joint venture company will be owned equally by each of Aérospatiale, BAe and  Finmeccanica. According to the joint venture agreement each party shall have an equal number of  shares bearing equal rights. 8.<ind> The joint venture will have a two tier governance structure. The Board of Directors forms  the first tier and will consist of an equal number of representatives of each party. All decisions of the  board will be unanimous, and will require the favourable vote of all directors present including one  from each parent company. Directors from one company may not vote differently on any issue. Each  parent company will appoint the President of the Board on a rotation basis for a one year term. 9.<ind> The Board of Directors has reserved to itself certain matters which include : the acquisition,  transfer or disposal of fixed assets or businesses with a value of more than [Deleted: business  secret.], the adoption of the capital expenditure budget and the annual operating budget and any  amendment to the five year business plan and the commercial policy of the company (including the  setting of prices and terms and conditions for the sale of aircraft). 10.<ind> The second tier of the governance of the joint venture is the Chief Executive Officer who is  appointed by unanimous resolution of the Board of Directors. The CEO has the responsibility for the  day-to-day management of the joint venture outside of the reserved matters including those set out  above. 11.<ind> The parties intend to operate the joint venture on a consensus basis. The joint venture  company has been set up as a Société par Actions Simplifée which is a relatively new form of  corporate vehicle under French law. [Deleted: business secret.] 12.<ind> Accordingly the joint venture is jointly controlled by each of Aérospatiale, BAe and  Finmeccanica. <tab> Not a full function autonomous economic entity 13.<ind> The Joint Venture Agreement sets out three distinct stages in the development of the joint  venture for the parties' activities associated with their existing aircraft. In the first stage [Deleted:  business secret.], the joint venture will act as an agent for the sales of existing aircraft and will be  paid for these services by the parent companies on the basis of its operating costs. Stage 2 envisages  a limited financial integration of the parents' activities in the joint venture with target revenues, costs  and working capital requirements being placed on it. The third stage of integration would be  industrial integration and integration on core products. By contrast, in relation to new aircraft, the  joint venture will immediately and on its own account undertake feasibility studies into the  possibility of new aircraft and full financial integration on new aircraft activity (including profit and  loss, working capital, sales financing and recourse).  14.<ind> The timing of the moves to stages 2 and 3 for existing aircraft is not specified in the joint  venture agreement [Deleted: business secret.]. There is no timescale envisaged for full industrial  integration. 15.<ind> According to the parties, the stages of integration are different for existing aircraft for four  main reasons: <ind> -<ind> the cost structure of the joint venture differs from the shareholding structure; <ind> -<ind> the parties have considerable existing liabilities in the regional aircraft sector, for  example through leasing arrangements or the acceptance of liabilities for existing aircraft when  selling new ones; <ind> -<ind> the need for transitional arrangements for sales financing and take back arrangements  which will allocate the costs for existing aircraft returned to the manufacturer on an appropriate  basis, establish common policies on financing arrangements and make arrangements for the  remarketing of aircraft; and <ind> -<ind> product liability for existing aircraft will remain with the parent companies.  16.<ind> In stage 1, the activities in which the joint venture will be engaged in respect of existing  aircraft are not sufficient to give it a full function nature, given the activities which the parent  companies will retain. This is notwithstanding the parties' assertions that they will be reducing their  combined workforce in sales and product support from [Deleted: business secret.] and that they  would lose all access to market information and that this in itself would be an irreversible shift. 17.<ind> However, these employees will not be employed by the joint venture but will, at least  initially, be seconded by the parents to it. In addition to that, in both stages 1 and 2 the joint venture  will act as the sales agent of the parties in respect to existing aircraft. In stage 1 the parents will  assume all the market risk, in stage 2 some responsibility will be transferred to the joint venture in  respect of working capital and deviations from the budget. Neither the precise timing nor the extent  of the limited financial integration envisaged for stage 2 have been agreed between the parties in the  joint venture agreement. 18.<ind> Another significant point is the doubt about the future of the joint venture should the  feasibility studies for the new large turboprop and new regional jet demonstrate that there is no  demand for such aircraft. According to the parties, there is a strong incentive to develop new  aircraft. This is because the value of the parties' existing product range depends in part on the  market's perception of the company as an ongoing entity with new products coming onto the market.  If the joint venture was to cease development of new aircraft, the parties argue, the economic  consequences would be extremely serious. 19.<ind> The feasibility studies into new aircraft are a determining factor in the future of the joint  venture. If no new aircraft is developed, then the joint venture is unlikely to progress beyond the  stage of being a joint sales agency and after sales service provider for the existing products of the  parents with the possible consequences outlined above. The regional aircraft market is characterised  by many manufacturers - both existing and potential - considering the introduction of new products.  Despite the parties' arguments that new aircraft are necessary for the future success of the joint  venture and in view, in particular, of answers from competitors and clients of the parties to which  questionnaires were sent by the Commission in that respect, it has not been demonstrated that the  feasibility studies will indicate that there is sufficient market demand for either a new large  turboprop or a new regional jet. For new aircraft, the joint venture will not be irreversible until the  feasibility studies have indicated that there is a market for one or both of the aircraft. III.<ind> CONCLUSION 20.<ind> In the light of the above information, the joint venture will not be full function as the  parties commitment to the joint venture is not irreversible before the successful completion and  implementation of the feasibility studies for new aircraft and the progression of the parties' existing  aircraft activities at least to stage 2 (limited financial integration).  21.<ind> For the above reasons the Commission has concluded that the notified operation does not  constitute a concentration within the meaning of Article 3(2) of the Merger Regulation and  consequently does not fall within the scope of this Regulation. This decision is adopted in  application of Article 6(1)(a) of Council Regulation No. 4064/89. 22.<ind> The Commission will treat the notification pursuant to Article 5 of Commisison  Regulation No. 2367/90 as an application within the meaning of Article 2 or a notification within  the meaning of Article 4 of Council Regulation 17/62 as requested by the parties in their  notification. For the Commission,