CELEX: 32019M9062
Language: en
Date: 2019-07-23 00:00:00
Title: Commission Decision of 23/07/2019 declaring a concentration to be compatible with the common market (Case No COMP/M.9062 - FORTRESS INVESTMENT GROUP / AIR INVESTMENT VALENCIA / JV) according to Council Regulation (EC) No 139/2004 (Only the English text is authentic)

EUROPEAN COMMISSION
                                                               Brussels, 23.7.2019
                                                               C(2019) 5608 final
                                                                                 PUBLIC VERSION
                                                                 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                                                                 possible the information omitted has been
                                                                 replaced by ranges of figures or a general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.
                                                               To the notifying parties
Subject:            Case M.9062 – Fortress Investment Group/Air Investment Valencia/JV
                    Commission decision pursuant to Article 6(1)(b) of Council Regulation
                    No 139/20041 and Article 57 of the Agreement on the European Economic
                    Area2
Dear Sir or Madam,
(1)       On 19 June 2019, the Commission received notification of a proposed concentration
          pursuant to Article 4 of Council Regulation (EC) No 139/2004.3 Fortress Investment
          Group (USA) and Air Investment Valencia (Spain) acquire, by way of purchase of
          shares, joint control within the meaning of Article 3(1)(b) and 3(4) of the Merger
          Regulation of a newly created company constituting a joint venture (the “JV”), in
          which (i) Fortress Investment Group will contribute the business of CityJet and (ii)
          Air Investment Valencia will contribute the businesses of Air Nostrum (the
          “Transaction”). The Transaction is accomplished by way of purchase of shares.
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 1, 3.1.1994, p. 3 (the “EEA Agreement”).
3    OJ L 24, 29.1.2004, p. 1 (the ‘Merger Regulation’).
Commission européenne, DG COMP MERGER REGISTRY, 1049 Bruxelles, BELGIQUE
Europese Commissie, DG COMP MERGER REGISTRY, 1049 Brussel, BELGIË
Tel: +32 229-91111. Fax: +32 229-64301. E-mail: COMP-MERGER-REGISTRY@ec.europa.eu.
 ---pagebreak--- (2)      CityJet and Air Nostrum are both regional airlines providing – amongst others - wet-
         leasing services (leasing of aircraft with crew and maintenance services) to other
         airlines.
1.       THE PARTIES
(3)      Fortress Investment Group (“Fortress”) is global investment management firm
         belonging to SoftBank Group (Japan), a group comprising subsidiaries involved in
         telecommunication products and services, primarily in the USA and in Japan.
         Fortress is pre-Transaction jointly controlling CityJet, together with CityJet Holdings
         Ltd.4 CityJet is a European regional airline based in Dublin, Ireland. It is operating a
         fleet of 35 aircraft and is providing wet-leasing services to other airlines across
         Europe. Fortress is also the parent company of Falko Regional Aircraft Limited
         (Falko), a provider a dry lease and other aviation services to airlines worldwide,
         including in Europe.
(4)      Air Investment Valencia is a holding company indirectly fully owned by Mr Carlos
         Bertomeu. Through Air Investment Valencia, Mr. Bertomeu pre-Transaction solely
         controls Air Nostrum.5 Air Nostrum is a regional airline based in Valencia, Spain,
         and is operating a fleet of approximately 50 aircraft. It is providing scheduled flight
         services under a franchise agreement with Iberia. In addition, Air Nostrum is
         providing charter services, wet-leasing services, crew training and aircraft
         maintenance services to other airlines. Air Nostrum solely controls Aviatech &
         Consulting, S.L., a provider of technical services such as flight control and flight
         operations, and Hibernian Airlines Limited, an airline based in Ireland, which is
         providing wet-leasing services, currently only to Air Nostrum. Both companies will
         also be contributed to the JV.
(5)      The proposed transaction6 in essence amounts to the combination of CityJet’s and
         Air Nostrum’s activities in wet-leasing.
2.       THE CONCENTRATION AND THE ACQUISITION OF JOINT CONTROL
(6)      The businesses of City Jet and Air Nostrum will be transferred to a newly created
         joint venture, which will own 100% of the shares in Air Nostrum and 100% of the
         shares in CityJet. The current shareholders of Air Nostrum (including its controlling
         parent Air Investment Valencia) will hold 70% of the JV. The remaining 30% of the
         shares in the JV will be owned by Fortress.
(7)      Post-Transaction, the JV will be jointly controlled by Fortress and Air Investment
         Valencia.7 Air Investment Valencia is the majority shareholder of the JV, but
4   CityJet Holdings Ltd. is owned by three natural persons. [Information on strategic decision making rights
    and economic activities of the relevant individuals] he is not considered to be a natural person controlling
    CityJet in accordance with paragraph 12 CJN.
5   Air Nostrum has several shareholders. Mr Carlos Bertomeu holds both individually and through Air
    Investment Valencia 58,71% of Air Nostrum’s shares. Carlos Bertomeu, through Air Investment Valencia,
    solely controls Air Nostrum (Form CO, paragraph 33).
6   This decision is without prejudice to any potential future state aid enquiry into financing of Air Nostrum’s
    aircraft.
                                                           2
 ---pagebreak---         Fortress has negative joint control together with Air Investment Valencia through
        certain veto rights conferred to Fortress regarding key business decisions. Fortress
        and Air Investment Valencia will determine the initial budget and business plan
        together. In addition, for the first […] years, Fortress will have veto rights regarding
        the approval of annual budget and business plan, the appointment of the CFO and
        the termination of contracts with the current CityJet management team. Those veto
        rights will exist for a period of […] years. According to paragraph 34 CJN, only a
        relatively short period not exceeding one year will make it unlikely that the joint
        control period has a distinct impact on the market structure and could be considered
        as not leading to a change in control on a lasting basis.
(8)     As a result, Fortress and Air Investment Valencia will acquire joint control over the
        JV on a lasting basis.
3.      FULL-FUNCTIONALITY OF THE JV
(9)     The JV will be full-function within the meaning of Article 3 (4) EUMR since it has
        sufficient resources, activities beyond one specific function for the parents, access to
        the market and operates on a lasting basis.
4.      EU DIMENSION
(10)    The undertakings concerned have a combined aggregate world-wide turnover of
        more than EUR 5 000 million (Softbank Group: EUR […] million, Air Investment
        Valencia: EUR […] million). Each of them has an EU-wide turnover in excess of
        EUR 250 million (Softbank Group: EUR […] million, Air Investment Valencia:
        EUR […] million), but they do not both achieve more than two-thirds of their
        aggregate EU-wide turnover within one and the same Member State.
(11)    The notified operation therefore has an EU dimension pursuant to Article 1(2) of the
        Merger Regulation.
5.      MARKET DEFINITION
(12)    CityJet provides wet and damp lease (ACMI) services and charter flight services.
        CityJet’s charter flight services have largely wound down and charter flights are
        provided only on a very exceptional basis for […].8
(13)    Air Nostrum provides franchise services, wet and damp lease services and charter
        flight services.
(14)    Fortress Investment Group is active dry leasing services through its subsidiary Falko.
(15)    Dry-leasing, wet and damp leasing and franchise services are used by airlines to
        increase capacity. Dry-leasing involves the leasing of an aircraft to an airline,
7   Post-Transaction, CityJet Holdings will either cease to exist or it may continue to be used as a holding
    company under the indirect ownership of Fortress; in any case, it will not be jointly controlling the JV.
8   Form CO, paragraph 105.
                                                         3
 ---pagebreak---          without crew, maintenance services and insurance. Wet-leasing to airlines involves
         the leasing of an aircraft to an airline with crew, maintenance and insurance
         (‘ACMI’). A damp lease is very similar to a wet lease. The only difference is that
         with damp leases, the cabin crew are provided by the lessee. Under a franchise
         agreement, the franchisor airline puts its brand and livery at the disposal of the
         franchisee for use under the franchise agreement. Charter flights services are flights
         operated by an airline on behalf of a third party where the airlines quotes an “all-in”
         cost to the customer. Charter flight services use the flight numbers of the operating
         airline and all operating costs (fuel, handling, navigation, etc.) are paid for by the
         airline and “bundled” into the price ultimately charged to the customer. The
         customer is generally a non-airline customer such as travel agency, a tour operator or
         a private/corporate entity such as a sports team.
(16)     In a previous decision, the Commission considered that dry-leasing, wet-leasing and
         franchise services constituted three distinct markets, notably because of their
         different characteristics from a demand-side perspective.9 The Commission has also
         considered the market for charter flights as a distinct market from the market for
         scheduled flights.10
(17)     The Transaction therefore gives rise to horizontal overlaps with respect to (i) wet and
         damp lease services and (ii) charter flight services. The Transaction also creates
         vertical links with respect to (a) dry-leasing services on the one hand and (i) wet and
         damp leasing services, (ii) franchise services and (iii) charter flight services on the
         other hand (b) wet-leasing services on the one hand and (i) franchise services and (ii)
         charter flight services, on the other hand.
5.1.     Wet and damp-leasing services
5.1.1. Product market definition
(18)     Under a wet-leasing agreement, the lessor operates the flights using its own air
         operator certificate (AOC) and resources, for which it receives an income from the
         lessee which is usually a fixed price per block hour. This income would be unrelated
         to ticket prices and aircraft load factor. The flights are flown under the lessee’s code
         and it is the lessee who sells the tickets and provides passenger and ground handling
         services. The commercial risk in a wet lease lies with the lessee, who must generate
         the revenue to cover the cost of the wet-leasing services and other operating costs.
         Wet-leasing would allow for an airline to have an aircraft ready turnkey to fly its
         passengers without investing in the aircraft or crew to operate it.11
(19)     The Parties submit that a damp lease would be very similar to a wet lease. The only
         difference would be that with damp leases the cabin crew would be provided by the
         lessee, not the lessor. The Parties consider damp leases and wet-leases to form part
         of one wet-leasing market. They state that it would only be in incidental cases that
         customers ask for damp leases and the Parties would have not experienced a request
         for a damp lease so far. In addition, the Parties would not be aware of any wet-
9   Case M.9287 – Connect Airways/Flybe, paragraph 211-213 (to be published).
10  In decisions related to scheduled air transport services, the Commission considered, while ultimately
    leaving the question open, that charter flights were not part of the same market as scheduled flights (see
    e.g. cases M.8869 – Ryanair/Laudamotion, paragraph 154; M.6447 – IAG/bmi, paragraph 74).
11 Form CO, paragraph 57 et seq. and 76.
                                                          4
 ---pagebreak---        leasing provider which only focuses on damp-leasing. All wet-leasing providers
       would be able to provide damp-leasing services if requested by the customer.12
(20)   In its prior decisional practice, the Commission did not specifically examine damp
       lease services.
(21)   The market investigation in this case has not generated any evidence indicating that
       wet-leasing and damp-leasing services would not be substitutable from the supply
       and the demand side. Respondents have not submitted any comment suggesting that
       a distinction between wet-leasing and damp-leasing would be appropriate.13
       Considering that the Parties have never provided damp-leasing services so far and
       that no airline solely provides damp-leasing services, the Parties’ market shares in
       the market for wet-leasing only would not significantly vary. The question of
       whether wet-leasing and damp-leasing services are part of the same market can be
       left open, since the Transaction is unlikely to raise serious doubts as to its
       compatibility with the internal market in relation to wet and damp leasing services,
       under any plausible product market definition.14 In this decision, the Commission
       will further assess the effects of the Transaction on the hypothetical narrower
       segment for wet-leasing services.
(22)   The Commission has in a previous case considered that wet-leasing services for
       cargo air transport services and wet-leasing services for passenger air transport
       services appear to constitute distinct markets.15 However, since CityJet and Air
       Nostrum only provide wet-leasing services for passenger air transport,16 the
       Commission will only assess this market segment further in this decision.
(23)   In addition, while ultimately leaving the precise market definition open, the
       Commission has considered in a previous case that the market for the provision of
       wet-leasing services could be segmented according to aircraft size (seat capacity).
       The Commission has considered distinctions between regional aircraft (aircraft with
       around 30-90+ seats and a range of less than 2000 nautical miles) and large
       commercial aircraft (aircraft with more than 100 seats and a range greater than 2000
       nautical miles). With regard to large commercial aircraft, a distinction between wide-
       body aircraft with 200-400+ seats and narrow-body aircraft with 100-200 seats was
       considered. Concerning regional aircraft, the Commission considered, but ultimately
       left open, a distinction between small regional aircraft with 30-50 seats and large
       regional aircraft with 70-90+seats.17
(24)   The Parties submit that, while it would be difficult to draw a particular distinction
       based on aircraft sizes, a possible distinction could be made between small aircraft
12 Form CO, paragraph 59 et seq.
13 See agreed non-confidential minutes of a conference call of 28 June 2019 with a competitor; agreed non-
   confidential minutes of a conference call of 8 July 2019 with a competitor; agreed non-confidential
   minutes of a conference call of 12 July 2019 with a competitor; agreed non-confidential minutes of a
   conference call of 20 June with a customer; agreed non-confidential minutes of a conference call of 26
   June with a customer; agreed non-confidential minutes of a conference call of 1 July with a customer;
   agreed non-confidential minutes of a conference call of 2 July with a customer.
14 See sections 6.1, 6.3.2, 6.3.5 and 6.3.6 below.
15 Case M.9287 – Connect Airways/Flybe, paragraph 223 (to be published).
16 Reply to RFI 1 of 10 July 2019, question 3.
17 Case M.9287 – Connect Airways/Flybe, paragraph 229 (to be published).
                                                         5
 ---pagebreak---         with a seat capacity between 30-120 seats, middle-sized aircraft with a seat capacity
        between 121-190 seats and large aircraft with a seat capacity of more than 191 seats.
        Given the various sizes available, it would not be possible to draw a clear line
        between regional aircraft and slightly larger narrow-body aircraft with more than 100
        seats. In the Parties’ view, while aircraft with a seat capacity of below 50 would be
        distinct from a demand side perspective, the aircraft sizes above would become
        substitutable to a significant extent. The Parties explained that, from a demand side
        perspective, airlines would take into account the total cost of production in their
        consideration which aircraft size to wet lease. These costs would include the wet
        lease rate charged by the lessor and all other operating cost for the flight operations.
        Larger aircraft would have a higher trip cost than a smaller unit, but the cost per seat
        would be lower and could be more attractive to a lessee.18
(25)    From a demand side perspective, the market investigation has indicated that
        customers consider a segmentation between aircraft with a seat capacity of less than
        115 and aircraft with a seat capacity of more than 100. Concerning wet-leasing
        services of regional aircraft, the following three possible ways to divide the market
        for wet-leasing services of regional aircraft by seat capacity, were considered by
        customers: (i) under 50 seats; above 50 seats; (ii) 50-70 seats; 70-100 seats and (iii)
        30-70 seats; 70-100+ seats.19
(26)    Considering that the Parties do not operate aircraft of a seat capacity of 50-70, the
        Transaction would not give rise to an overlap with respect to this hypothetical
        narrower market. It is therefore not necessary to further assess whether the market
        for wet-leasing services of regional aircraft should be segmented according to the
        following seat capacities (i) aircraft with a capacity under 50 seats; above 50 seats;
        (ii) 50-70 seats; 70-100 seats.
(27)    In any event, the question of whether wet-leasing services should be segmented
        according to the aircraft capacity can be left open for the purpose of this case, since
        the Transaction is unlikely to raise serious doubts as to its compatibility with the
        internal market in relation to wet-leasing services, under any plausible product
        market definition.20 Nevertheless, considering that the Parties both use regional
        aircraft of a seat capacity between 88 and 100, the Commission will assess the
        effects of the Transaction on the following markets: the broader market for wet-
        leasing services; the segment for wet-leasing services of regional aircraft (with a
        capacity of 30-90+ seats); the sub-segment large regional aircraft (with a capacity of
        70-90+ seats).
5.1.2. Geographic market definition
(28)    The Parties consider that the market for wet-leasing services is at least EEA-wide.21
18  Form CO, paragraph 152.
19  See agreed non-confidential minutes of a conference call of 20 June with a customer, paragraph 7; agreed
    non-confidential minutes of a conference call of 26 June with a customer, paragraph 5; agreed non-
    confidential minutes of a conference call of 1 July with a customer, paragraph 5; agreed non-confidential
    minutes of a conference call of 2 July with a customer, paragraph 10.
20 See sections 6.1, 6.3.2 and 6.4 below.
21 Form CO, paragraph 96.
                                                          6
 ---pagebreak--- (29)    In a previous decision, the question of whether the market for wet-leasing services is
        EEA-wide or worldwide was left open.22
(30)    The market investigation has indicated that from a supply-side perspective, the main
        competitors of CityJet and Air Nostrum are only active in the EEA but they could, in
        principle, offer wet-leasing services worldwide.23 From a demand-side perspective,
        airlines purchasing wet-leasing services considered that they would purchase the
        services from wet-lessors within the EEA for wet-leases with a duration of more than
        six-seven months because of the current regulatory framework.24 Article 13(3)(b) of
        Regulation no 1008/2008 of 24 September 2008 on common rules for the operation
        of air services in the Community limits wet-leasing arrangements between EU air
        carriers and third countries to seven months, renewable once.
(31)    Based on the above considerations, the Commission considers that the geographic
        market for wet-leasing services is at least EEA-wide.
(32)    The question of whether the geographic market for wet-leasing services is EEA-wide
        or worldwide can be left open for the purpose of this case, since the Transaction is
        unlikely to raise serious doubts as its compatibility with the internal market in
        relation to wet-leasing services if an EEA-wide market is considered, which is in any
        case the narrower market.25
5.2.    Charter flight services
5.2.1. Product market
(33)    Charter flight is a service where the flight characteristics, such as dates, times, cities
        of departures and destination, and inflight services, are arranged in accordance with
        the customer’s needs. Charter flights are thus air transport services that take place
        outside normal schedules, normally through an arrangement with a particular
        customer (e.g. a tour operator, a sports team).
(34)    In its prior decisional practice, the Commission defined a separate wholesale market
        for airline seats, in which supply is represented by airlines and demand by tour
        operators that purchase individual seats, block seats or entire flights and integrate
        them in their package holidays. The Commission considered but left open whether
        there is a separate market for the wholesale supply of airline seats by charter
        airlines.26 Considering that there might be a market for the wholesale supply of
        airline seats to tour operators by charter airlines, it could be argued that the market
        for charter flights could be segmented by customer type. The Parties consider that
        the exact market definition can be left open, given the small scale of charter services
        offered by the Parties.27
22  Case M.9287 – Connect Airways/Flybe, paragraph 232 (to be published).
23  See agreed non-confidential minutes of a conference call of 28 June 2019 with a competitor, paragraph 6
    and agreed non-confidential minutes of a conference call of 8 July 2019 with a competitor, paragraph 6.
24  See agreed non-confidential minutes of a conference call of 1 July with a customer, paragraph 5 and
    agreed non-confidential minutes of a conference call of 2 July with a customer, paragraph 10.
25  See sections 6.1, 6.3.2 and 6.4 below.
26  See e.g. Case M.8046 – TUI/Transat France, paragraph 73.
27  Form CO, paragraph 95.
                                                          7
 ---pagebreak--- (35)    The question of whether charter flight services should be segmented between (i)
        charter flight services to tour operators and (ii) charter flight services for other types
        of customers (private individuals or businesses, such as sports clubs) can be left open
        for the purpose of this case, since the Transaction is unlikely to raise serious doubts
        as to its compatibility with the internal market in relation to charter flight services,
        under any plausible product market segmentation.28
5.2.2. Geographic market definition
(36)    The Parties consider that the market for charter flight services should be defined as
        at least EEA-wide.29
(37)    In its decisional practice relating to the wholesale supply of airline seats to tour
        operators by charter airlines, the Commission considered that the geographic scope
        was national.30
(38)    Considering that there are no regulatory restrictions preventing a charter airline from
        providing services outside from its own country of establishment, charter flight
        provider can offer services on any route within the EEA. In addition, the cities of
        origin and destination for charter flights are defined by the customer, which selects a
        provider of charter services, indifferent from its country of establishment. In that
        regard, Air Nostrum and CityJet have provided charter flights to customers in the
        majority of EEA countries.31 A respondent to the market investigation that provides
        charter flights indicated that it provides charter flights on any city-pair within the
        EEA and therefore considers the market for charter flight services as EEA-wide.32
        There are therefore indications that the geographic scope for charter flight services is
        EEA-wide.
(39)    However, the question of whether the geographic scope of charter flight services is
        EEA-wide or national can be left open for the purpose of this case, since the
        Transaction is unlikely to raise serious doubts as to its compatibility with the internal
        market in relation to charter flight services, under any plausible geographic market
        segmentation.33
5.3.    Franchise services
5.3.1. Product market
(40)    Under a franchise agreement, the franchisee operates with its own aircraft, crew,
        maintenance, insurance and slots, using the brand and livery of the franchisor. The
        franchisee bears the commercial risk, including setting fares, but the franchisor
        markets the route as part of its network and sells the tickets. In return for the use of
        the brand and for the services provided, the franchisee pays a fee to the franchisor. In
        contrast with wet-leasing services, franchise services are hence more akin to
        scheduled services.
28  See sections 6.2, 6.3.3 and 6.4.2 below.
29  Form CO, paragraph 100.
30  See e.g. Case M.8046 – TUI/Transat France, paragraph 88.
31  Form CO, paragraph 100.
32  See agreed non-confidential minutes of a conference call of 12 July with a competitor, paragraph 10.
33  See sections 6.2, 6.3.3 and 6.4.2 below.
                                                         8
 ---pagebreak--- (41)    In a prior decision, the Commission considered the provision of franchising services
        to other airlines as an input to the operation of passenger air transport services.34 For
        the purpose of the assessment of Transaction, the Commission will consider that dry-
        leasing services and wet-leasing services are an input to the operation of franchise
        services.
5.3.2. Geographic market
(42)    In a prior decision, the Commission considered that the geographic scope for the
        provision of franchise services is EEA-wide.35
(43)    In line with its prior decisional practice, the Commission considers that, for the
        purpose of this case, the geographic scope for the provision of franchise services is
        EEA-wide.
5.4.     Dry-leasing services
5.4.1. Product market definition
(44)    The Commission has, in a previous case considered, while ultimately leaving the
        precise market definition open, that the market for the provision of dry leasing
        services should be segmented according to aircraft size (seat capacity). Specifically,
        the Commission considered distinctions between regional aircraft (aircraft with
        around 30-100 seats and a range of less than 2000 nautical miles) and large
        commercial aircraft (aircraft with more than 100 seats and a range greater than 2000
        nautical miles). With regard to large commercial aircraft, a distinction between wide-
        body aircraft with 200-400+ seats and narrow-body aircraft with 100-200 seats was
        considered. Concerning regional aircraft, the Commission considered a distinction
        between small regional aircraft with 30-50 seats and large regional aircraft with 70-
        90+seats.36
(45)    The exact product market definition can however be left open for the purpose of this
        case, since the Transaction is unlikely to raise serious doubts as to its compatibility
        with the internal market in relation to dry-leasing services, under any plausible
        market segmentation.37
5.4.2. Geographic market definition
(46)    The Parties consider the market to be worldwide, since most leasing companies
        would be active and compete with each other globally. Dry lessors could easily reach
        customers anywhere in the world. Aircraft delivery cost would be minimal and there
        would be no regulatory restrictions in terms of technical specifications that would
        limit the use of certain types of aircraft to a particular continent.38
34  Case M.9287 – Connect Airways/Flybe, paragraph 233 (to be published).
35  Case M.9287 – Connect Airways/Flybe, paragraph 235 (to be published).
36 Case M.9287 – Connect Airways/Flybe, paragraphs 215-219 (to be published).
37 See sections 6.3 below.
38 Form CO, paragraph 99.
                                                     9
 ---pagebreak--- (47)     The Commission has considered in a previous case that the market for the provision
         of dry-leasing services is worldwide.39
(48)      In line with its prior practice, the Commission will assess the effects of the
         Transaction on a worldwide market for dry-leasing services.
6.       COMPETITIVE ASSESSMENT
6.1.     Horizontal overlap – wet-leasing services
(49)     The Parties’ activities overlap with respect to the provision of wet-leasing services.
(50)     CityJet currently offers two aircraft types on its wet-lease services: the Avro RJ85
         with 95 seats and the Bombardier CRJ900 with 88/90 seats.40 Air Nostrum currently
         offers the following aircraft types on its wet-leases services: […].41
(51)     While CityJet currently operates 30 aircraft for wet-leasing services, Air Nostrum
         operates seven aircraft. In theory, CityJet could use up to […] aircraft for wet-leasing
         services, while Air Nostrum could use up to […] aircraft for wet-leasing services.42
         Air Nostrum operates most of its fleet (i.e. […] aircraft) under a franchise agreement
         with Iberia.43 This agreement was signed in 1997 for an initial duration of […] years.
         It is automatically renewed for […] periods unless one of the parties states its will to
         terminate the agreement […] before the expiry of this […] period. The current
         agreement is valid until […]. The operation under the Iberia franchise agreement
         constitute the core of Air Nostrum’s business model.44 By contrast, wet-leasing
         contracts are usually concluded for shorter periods, [confidential information
         regarding the Iberia Agreement]. In addition, the terms of the franchise agreement
         with Iberia require Air Nostrum to use a dedicated fleet with the Iberia livery.
         [confidential information regarding Air Nostrum’s fleet management] For these
         reasons, the Commission considers that Air Nostrum cannot rely of the […] aircraft
         used for the franchise operation to provide wet-leasing or bid for future tenders for
         wet-leasing services.
(52)     The Parties’ market shares post-Transaction on every plausible market where the
         Parties’ activities overlap are provided in the table below.
39  Case M.9287 – Connect Airways/Flybe, paragraph 221 (to be published).
40  Form CO, paragraph 179.
41  Form CO, paragraphs 150 and 185.
42  Form CO, paragraph 164.
43  As indicated in paragraphs 3 and 4 above, CityJet and Air Nostrum have a fleet of respectively 35 and
    approximately 50 aircraft. The Parties submit that the number of CityJet’s aircraft available for wet-
    leasing operations corresponds to its total fleet minus some backup aircraft necessary to guarantee
    CityJet’s overall operations. The number of Air Nostrum’s aircraft available for wet-leasing services
    corresponds to its total fleet minus the aircraft necessary for the Iberia franchise operations, its charter
    flights operation and backup aircraft necessary to guarantee Air Nostrum’s operations (Form CO,
    paragraph 164).
44  In 2017, […]% of Air Nostrum’s revenues were generated through the franchise agreement with Iberia
    (email of the Parties dated 16 July 2019).
                                                          10
 ---pagebreak---         Table 1 - Parties' shares in wet-leasing services in the EEA [May and July 2019]45
                              Wet-leasing                   Wet-leasing                  Wet-leasing
                              services                      services of regional         services of large
                                                            aircraft (30-90+             regional aircraft
                                                            seats)                       (70-90+ seats)
        CityJet               [5-10]%                       [10-20]%                     [20-30]%
        Air Nostrum           [0-5]%                        [5-10]%                      [5-10]%
        Total JV              [5-10]%                       [20-30]%                     [20-30]%
        Medops46              [0-5]%                        [0-5]%                       [0-5]%
        Total Parties         [10-20]%                      [20-30]%                     [30-40]%
        NoRRA                 [5-10]%                       [10-20]%                     [10-20]%
        Nordic/Danish
        Air Transport
        Regional        Jet [0-5]%                          [10-20]%                     [10-20]%
        OÜ
        WDL/LGW               [0-5]%                        [10-20]%                     [10-20]%
        Source: Form CO, paragraphs 140 and 161 and reply to RFI 1 of 10 July, question 5.47
(53)    Therefore, the Transaction will give rise to affected markets with respect to (i) the
        supply of wet-leasing services of regional aircraft in the EEA and (ii) the sub-
        segmentation for wet-leasing services of large regional aircraft with a capacity
        between 70 and 90+ seats.
(54)    However, in both of these affected markets, the combined market share post-
        Transaction are moderate ([20-30]% in wet-leasing of regional aircraft and [30-40]%
        in wet-leasing of large regional aircraft) and the increment is also moderate ([5-10]%
        with respect to wet-leasing of regional aircraft and [5-10]% with respect to wet-
        leasing of large regional aircraft).
45 The Parties submitted that they do not have reliable market data on the number of competitors’ aircraft
   available for wet-leasing services. On a conservative basis, the Parties’ market shares are calculated based
   on their own total number of aircraft available to use for wet-leasing services, while the size of the market
   is determined based on the number of aircraft actually used for wet-leasing services. The Parties’ market
   shares would necessarily be lower, if the size of the market was based on the number of aircraft available
   for wet-leasing services (Form CO, paragraphs 162 et seq). The Parties’ available capacity takes account
   of their potential future plans to lease/acquire aircraft (reply to RFI 4 of 16 July 2019).
46 Mediterranean Aviation Operations Company, Ltd. (“Medops”) is an airline jointly controlled by Air
   Investment Valencia active in the operation of air routes between Europe and Africa. Medops is focused
   on providing air transportation services to gas and oil companies, corporate clients and humanitarian
   organizations, mainly through charter flight and wet-lease services. In particular, Medops provides wet-
   lease services third parties (3 aircraft) (Form CO, footnote 2).
47 The Parties have provided market shares based on data from ch-aviation database retrieved on 29 May
   2019 and 12 July 2019.
                                                             11
 ---pagebreak--- (55)   In addition, the Parties will continue to face significant competition from other
       established wet-leasing services providers such as NoRRA Nordic, Regional Jet and
       WDL/LGW, whose market share in wet-leasing services of large regional aircraft are
       respectively [10-20]%, [10-20]% and [10-20]%.48
(56)   There is a significant number of wet-leasing services suppliers in the EEA (78
       suppliers of wet-leasing services to third parties, in addition to approximately 20
       providers of in-house wet-leasing services).49 These suppliers of wet-leasing services
       can provide wet-leases across the EEA, considering that there is no regulatory barrier
       for EEA airlines to provide wet-leasing services in the EEA.50
(57)   Barriers to entry into the market for wet-leasing services market and related costs are
       relatively low for airlines already operating scheduled, franchise or charter services,
       since they already possess the necessary resources for the provision of wet-leasing
       services. For a new airline wishing to enter the market for wet-leasing services, the
       barriers to entry are lower than those for entering the market for scheduled passenger
       air transport services, given that there is no need to have customer-facing services
       (e.g. sales and marketing services). In that respect, Regional Jet entered the market
       for wet-leasing services of regional aircraft in 2016, following the demise of
       Estonian Airlines, and currently provide wet-leasing services to five different
       airlines, operating 19 aircraft.51
(58)   From the demand-side, there are no significant barriers to switching between wet-
       lessors. Switching costs seem to be low and most contracts have a limited duration
       (of up to 3 years).52 Airlines can purchase wet-leasing services from approximately
       78 providers of wet-leasing services in the EEA.53 The market investigation
       confirmed that airlines tend to have different suppliers of wet-leasing services54 and
       would have no difficulty in switching suppliers.55
(59)   In addition, customers indicated that they consider that the Transaction is unlikely to
       have a negative impact on the competitive situation of the markets for wet-leasing
       services.56 Some customers indicated that the impact of the Transaction might even
       be positive for their companies, as the Transaction might create synergies and
       potentially allow the merged entity to charge lower prices due to cost efficiencies.57
       Competitors indicated that generally, they do not consider that the Transaction
48 Reply to RFI 1, question 5.
49 Form CO, paragraph 193.
50 Form CO, paragraph 194.
51 Form CO, paragraph 205.
52 Form CO, paragraphs 199 and 212.
53 Form CO, paragraph 193.
54 See agreed non-confidential minutes of a conference call of 26 June with a customer, paragraph 2; agreed
   non-confidential minutes of a conference call of 2 July with a customer, paragraph 2; agreed non-
   confidential minutes of a conference call of 28 June 2019 with a competitor, paragraph 10.
55 See agreed non-confidential minutes of a conference call of 1 July with a customer, paragraph 8.
56 See agreed non-confidential minutes of a conference call of 20 June with a customer, paragraph 10;
   agreed non-confidential minutes of a conference call of 26 June with a customer, paragraph 9; agreed non-
   confidential minutes of a conference call of 1 July with a customer, paragraph 7; agreed non-confidential
   minutes of a conference call of 2 July with a customer, paragraph 15.
57 See agreed non-confidential minutes of a conference call of 1 July with a customer, paragraph 7; agreed
   non-confidential minutes of a conference call of 2 July with a customer, paragraph 14.
                                                         12
 ---pagebreak---         would have a negative impact on their companies.58 Some competitors indicated that
        they might have a disadvantage in case an airline launches a tender for a high
        number of aircraft, to which the merged entity would be the only wet-lessor able to
        respond.59 However, these competitors indicated that tenders for a high number of
        aircraft are infrequent.60
(60)    In light of the above considerations, the Commission concludes that the Transaction
        is unlikely to raise serious doubts as to its compatibility with the internal market in
        relation to wet-leasing services, under any plausible market definition.
6.2.    Horizontal overlap – charter flight services
(61)    The Parties submit that CityJet and Air Nostrum currently have very limited
        activities and only a couple of aircraft in use for conducting charter services. While
        Air Nostrum uses […] aircraft for charter services focusing on customers in Spain,
        CityJet’s charter flight services have largely wound down and charter flights are
        provided only on a very exceptional basis (a few flights per year) for [name of
        customer].61
(62)    In order to adopt a conservative approach, the Commission will consider that CityJet
        is active in charter flight services.
(63)    If the geographic market is defined as EEA-wide, the Parties’ activities overlap on
        the broader market for charter flight services and the narrower market for charter
        flight services for private individuals and businesses (e.g. sports teams). However,
        the Parties’ combined market share post-Transaction will remain below [0-5]%.62
(64)    If the geographic scope for charter flight services is defined as national, the Parties’
        activities would not overlap given that CityJet is not active in charter flight services
        in Spain (where Air Nostrum mainly operates) or in any of the other countries where
        Air Nostrum is active.63
(65)    The Transaction will therefore not result in any horizontally affected markets and is
        unlikely to raise competition concerns.
(66)    In light of the above considerations, the Commission concludes that the Transaction
        is unlikely to raise serious doubts as to its compatibility with the internal market in
        relation to charter flight services, under any plausible market definition.
58  See agreed non-confidential minutes of a conference call of 8 July 2019 with a competitor, paragraph 8;
    agreed non-confidential minutes of a conference call of 28 June 2019 with a competitor, paragraph 10.
59  See agreed non-confidential minutes of a conference call of 8 July 2019 with a competitor, paragraph 8;
    agreed non-confidential minutes of a conference call of 12 July with a competitor, paragraph 11.
60  See agreed non-confidential minutes of a conference call of 8 July 2019 with a competitor, paragraph 8.
61  [Further information on customer and the routes flown]. Form CO, paragraph 105 and reply to RFI 1 of 10
    July 2019, question 1.
62  Form CO, paragraph 105 and reply to RFI 2 of 11 July 2019, question 2. Based on the Parties’ estimates,
    approximately 288 airlines provide charter flight services, using 5,469 aircraft. Air Nostrum only uses a
    couple of aircraft for charter flight services. The Parties’ are unable to provide estimates of their market
    shares with respect to the sub-segment for charter flight services to private individuals and businesses. In
    any event, the combined market share and the increment would be very limited.
63  Form CO, paragraph 106 and reply to RFI 2 of 11 July 2019, question 2. For the sake of completeness, the
    Parties confirmed that there would be no overlap on a route-by-route basis.
                                                           13
 ---pagebreak--- 6.3.     Vertical relationships – dry-leasing services
(67)    Fortress Investment Group, through its subsidiary Falko, is active on the market for
        dry-leasing services while the JV will be active on the downstream markets for
        charter flights and wet-leasing services.64
(68)    Therefore, the Transaction gives rise to potential vertical relationships between
        Falko’s activities in the upstream market for dry-leasing services, on the one hand,
        and the Parties’ activities in the downstream markets for (i) charter flight services
        and (ii) wet-leasing services, on the other hand.
6.3.1. Overview of Falko’s activities and market shares in dry-leasing services
(69)    Falko has a fleet of […] aircraft available for dry-leasing services, focusing on
        regional aircraft. Its fleet comprises different regional aircraft types with a seat
        capacity between 50 (for Bombardier CRJ100/200 aircraft) to 118 (for the Embraer
        E195 aircraft).65
(70)    Falko dry-leases […] aircraft to customers in the EEA. Approximately […] of these
        aircraft have a capacity between 70 and 90 seats, the remaining aircraft having a
        capacity between 90 and 120 seats.66
(71)    Falko’s share in dry-leasing services worldwide is below [0-5]%.67 Its share would
        be well below [5-10]% in any plausible segmentation of dry-leasing services of
        regional aircraft.68
6.3.2. Vertical relationship between the Parties’ activities in dry-leasing services and wet-
        leasing services
(72)    As explained in section 6.1 above, the Parties’ combined share in wet-leasing
        services only exceeds 30% in one plausible delineation for wet-leasing services
        (namely wet-leasing services of large regional aircraft with a capacity of 70-90+
        seats). Falko’s market share in dry-leasing services under any plausible market
        delineation is also well below 30%.69
(73)    Considering that Falko’s market share in the upstream market for dry-leasing
        services of regional aircraft would be low (below [5-10]%), the Commission
        considers that the merged entity could not have the ability to restrict access to
        regional aircraft (input foreclosure) to airlines providing wet-leasing services in the
        EEA. Considering that the Parties’ market share in the downstream market for wet-
        leasing services of regional aircraft would be moderate (not exceeding [30-40]%
64  For the sake of completeness, the Parties indicated that Air Investment Valencia subsidiary Saimer
    provides dry leasing services to other Air Investment Valencia subsidiaries (Form CO, paragraph 222).
65  Form CO, paragraph 109 et seq. and reply to RFI 1 of 10 July 2019, question 2 and reply to RFI 2 of 11
    July 2019, question 1.
66  Form CO, paragraph 105 and reply to RFI 2 of 11 July 2019, question 2.
67  Form CO, paragraph 109.
68  Replies to QP 1 of 8 February 2019, question 8 and RFI 2 of 11 July 2019, question 1. The Parties
    indicated that Falko’s share in dry-leasing aircraft with a size between 70 and 90+ seats would be below
    [5-10]% in a geographic market defined as EEA-wide. The Parties submitted that Falko’s share in the
    worldwide market is necessarily lower.
69  Form CO, paragraph 109 and reply to RFI 2 of 11 July 2019, question 1.
                                                          14
 ---pagebreak---         under any plausible market delineation) and that numerous airlines provide wet-
        leasing services in the EEA, the merged entity would not represent a significant
        customer base for dry-leasing services of regional aircraft post-Transaction.
        Furthermore, Air Nostrum dry-leases [number of aircraft] from a third party dry
        lessor. Air Nostrum’s demand thus represents [less than 10]% of the EEA or
        worldwide market for dry-leased aircraft.70 As a result, there is no risk that the
        merged entity will restrict access of dry-lessors to the downstream markets for wet-
        leasing services post-Transaction (customer foreclosure).
(74)    In light of the above considerations, the Commission concludes that the Transaction
        is unlikely to raise serious doubts as to its compatibility with the internal market in
        relation to the vertical effects in the market for dry-leasing services and wet-leasing
        services, under any plausible market definition.
6.3.3. Vertical relationship between the Parties’ activities in dry-leasing services and
        franchise services
(75)    The Parties’ combined share in franchise services are below 30% under any
        plausible market delineation.71 Falko’s market share in dry-leasing services under
        any plausible market delineation is also well below 30%.72
(76)    The Transaction will therefore not result in any vertically affected markets with
        respect to dry-leasing services and franchise services.
(77)    In light of the above considerations, the Commission considers that the Transaction
        is unlikely to raise serious doubts as to its compatibility with the internal market in
        relation to the vertical effects in the markets for dry-leasing services and franchise
        services, under any plausible market definition.
6.3.4. Vertical relationship between the Parties’ activities in dry-leasing services and
        charter flight services
(78)    As explained in section 6.2 above, the Parties’ combined share in charter flight
        services are below 30% under any plausible market delineation. Falko’s market
        share in dry-leasing services under any plausible market delineation is also well
        below 30%.73
(79)    The Transaction will therefore not result in any vertically affected markets with
        respect to dry-leasing services and charter flight services.
(80)    In light of the above considerations, the Commission considers that the Transaction
        is unlikely to raise serious doubts as to its compatibility with the internal market in
        relation to the vertical effects in the markets for dry-leasing services and charter
        flight services, under any plausible market definition.
70  Form CO, paragraph 110.
71  Reply to RFI 3 of 15 July 2019, question 2.
72 Form CO, paragraph 109 and reply to RFI 2 of 11 July 2019, question 1.
73 Form CO, paragraph 109 and reply to RFI 2 of 11 July 2019, question 1.
                                                      15
 ---pagebreak--- 6.3.5. Conclusion
(81)     In light of the above considerations, the Commission concludes that the Transaction
         is unlikely to raise serious doubts as to its compatibility with the internal market due
         to the vertical links between the activities of Fortress Investment Group in the
         market for dry-leasing services, on the one hand, and the JV’s activities in the
         markets for (i) wet-leasing services, (ii) franchise services and (iii) charter flight
         services, on the other hand.
6.4.     Vertical relationships – wet-leasing services
(82)     CityJet and Air Nostrum are active in wet-leasing services, while the JV will be
         active on the downstream markets for franchise services and charter flights.
(83)     Therefore, the Transaction gives rise to potential vertical relationships between the
         Parties’ activities in the upstream market for wet-leasing services, on the one hand,
         and the Parties’ activities in the downstream markets for (i) franchise services and
         (ii) charter flight services, on the other hand.
6.4.1. Vertical relationship between the Parties’ activities in wet-leasing services and
         franchise services
(84)     As explained in section 6.1 above, the Parties’ combined share in wet-leasing
         services only exceeds 30% in one plausible delineation for wet-leasing services
         (namely wet-leasing services of large regional aircraft with a capacity of 70-90+
         seats). The Parties’ combined share in franchise services are below 30% under any
         plausible market delineation.74
(85)     Considering that the Parties’ combined market shares in the upstream market for
         wet-leasing services would be moderate (not exceeding [30-40]% under any
         plausible market delineation) and that numerous airlines provide wet-leasing services
         in the EEA, the merged entity could not have the ability to restrict access to wet-
         leasing services (input foreclosure) to airlines providing franchise services in the
         EEA. Considering that the Parties’ market share in the downstream market for
         franchise services would be moderate (below 30% under any plausible market
         delineation) and that Air Nostrum only purchases wet-leasing services to cover ad
         hoc specific capacity needs that may arise in the context of the Iberia franchise
         agreement, the merged entity would not represent a significant customer base for
         wet-leasing services post-Transaction.75 As a result, there is no risk that the merged
         entity will restrict access of wet-lessors to the downstream markets for franchise
         services post-Transaction (customer foreclosure).
(86)     In light of the above considerations, the Commission concludes that the Transaction
         is unlikely to raise serious doubts as to its compatibility with the internal market in
         relation to the vertical effects in the market for wet-leasing services and franchise
         services, under any plausible market definition.
74  Reply to RFI 3 of 15 July 2019, question 2.
75  See email of the Parties dated18 July 2019. In addition, customers of wet-leasing services are not confined
    to airlines providing franchise services, but also airlines providing scheduled passenger air transport and
    charter flight services.
                                                            16
 ---pagebreak--- 6.4.2. Vertical relationship between the Parties’ activities in wet-leasing services and
         charter flight services
(87)     As explained in section 6.1 above, the Parties’ combined share in wet-leasing
         services only exceeds 30% in one plausible delineation for wet-leasing services
         (namely wet-leasing services of large regional aircraft with a capacity of 70-90+
         seats). As explained in section 6.2 above, the Parties’ combined share in charter
         flight services do not exceed [0-5]% under any plausible market delineation.
(88)     Considering that the Parties’ combined market shares in the upstream market for
         wet-leasing services would be moderate (not exceeding [30-40]% under any
         plausible market delineation) and that numerous airlines provide wet-leasing services
         in the EEA, the merged entity could not have the ability to restrict access to wet-
         leasing services (input foreclosure) to airlines providing charter flight services in the
         EEA. Considering that the Parties’ market share in the downstream market for
         charter flight services are low (not exceeding [0-5]%) and that numerous airlines
         provide charter flight services in the EEA, the merged entity would not represent a
         significant customer base for wet-leasing services post-Transaction.76 As a result,
         there is no risk that the merged entity will restrict access of wet-lessors to the
         downstream markets for charter flight services post-Transaction (customer
         foreclosure).
(89)     In light of the above considerations, the Commission concludes that the Transaction
         is unlikely to raise serious doubts as to its compatibility with the internal market in
         relation to the vertical effects in the market for wet-leasing services and charter flight
         services, under any plausible market definition.
6.4.3. Conclusion
(90)     In light of the above considerations, the Commission concludes that the Transaction
         is unlikely to raise serious doubts as to its compatibility with the internal market due
         to the vertical links between the activities of the Parties in the market for wet-leasing
         services, on the one hand, and the JV’s activities in the market for (i) franchise
         services and (ii) charter services, on the other hand.
7.       CONCLUSION
(91)     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 and Article 57 of the EEA Agreement.
                                                                For the Commission
                                                                (Signed)
                                                                Margrethe VESTAGER
                                                                Member of the Commission
76  In addition, customers of wet-leasing services are not confined to airlines providing charter flight services,
    but also airlines providing scheduled passenger air transport and wet-leasing services.
                                                           17