1) I want to break free
After a massive battle lasting the best part of a decade, Aer Lingus cuts
loose from Ryanair
by Alec Burnside and Marjolein De Backer*
In August 2013, the UK’s Competition Commission (CC)
found that Ryanair’s presence on the Aer Lingus share register
impeded Aer Lingus from participating in industry
consolidation, and ordered a sell-down to 5%. Ryanair had
acquired most of its 29.82% stake in 2006 as part of a failed bid
for Aer Lingus, and resisted all efforts since then to force it to
exit its rival’s share register. Ryanair’s appeal against the CC’s
report was dismissed by the Competition Appeal Tribunal
(CAT) in March 2014.
The indication that Aer Lingus would soon be able to cut
loose from Ryanair awoke the interest of International Airlines
Group (IAG, the parent company of British Airways, Iberia
and Vueling), which approached Aer Lingus with a merger
proposal in December 2014. Ryanair responded with a fresh
appeal in the CAT seeking to reopen the CC report in the
light of IAG’s approach, while its appeal against the CAT in
the earlier litigation was still ongoing.
In a cascade of judgments and decisions in July this year, Aer
Lingus was finally able to unshackle itself from Ryanair. Adding
these to the history since 2006 brings to 30 the total number of
judgments and decisions in the Aer Lingus/Ryanair saga.
The history
Since Ryanair began building its 29.82% shareholding in 2006,
it launched three bids for its Irish rival. Ryanair’s appeal against
the first prohibition was dismissed (Case T-342/07) but it was
able to hold onto its minority stake (Case T-411/07), the
General Court forming the view that article 8(4) EUMR did
not empower the Commission to order divestiture of a noncontrolling stake, even though it had been integral to the
concentration which had been prohibited.
The second bid (2008) was abandoned on antitrust grounds,
and the third, in 2012, was again vetoed by DG Competition.
Ryanair’s Luxembourg appeal against the second prohibition
decision was still pending at the time of the IAG bid.
The Office of Fair Trading (OFT) had begun investigating
the minority shareholding situation in September 2010 after
the failure of the appeals arising from DG Competition’s first
prohibition decision. The three years that elapsed before the
CC’s August 2013 report reflected Ryanair’s determined
litigation strategy: it sued to prevent the OFT investigating but
failed; and the OFT belatedly referred the case to the CC for
an in-depth review. Within days, though, Ryanair launched its
third bid and sued to suspend the CC investigation; again it
failed but time was lost. So the litigation against the CC’s
belated August 2013 report was the third Ryanair application
in the CAT; and the challenge to reopen the report in view of
the IAG bid was the fourth separate time that Ryanair asked
the CAT to upend the UK investigation.
For more on this history see our earlier CLI articles “Irish
air traffic control”, CLI 16 April 2013; “Tyranny of the
minority”, CLI 15 October 2013; and “Running out of
fuel?”, CLI 17 March 2015.
CMA’s “material change in circumstances” decision
and order
Just as the Court of Appeal was ruling on the CC’s report,
Ryanair asked the Competition and Markets Authority (the
CMA, the successor to the CC and OFT) to reconsider the
CC’s report on the basis of the Enterprise Act’s opaque
“material change in circumstances” (MCC) provision, section
41 EA. Ryanair argued that IAG’s interest in Aer Lingus
undermined the report’s conclusion that Ryanair deterred
potential M&A partners for Aer Lingus.
The CMA, after consulting, decided that there had been no
MCC. IAG’s approach was consistent with the report’s finding
that Ryanair’s presence as a shareholder was likely to impede
or prevent Aer Lingus combining with other airlines: IAG’s
approach reflected the prospect of Ryanair being forced out
and was indeed conditional upon Ryanair’s exit. In fact, the
episode illustrated precisely that Ryanair was in a position to
determine whether a bid would succeed or fail. When issuing
its MCC decision, the CMA also adopted a final order to
compel the sell-down.
Ryanair appealed the MCC decision and the order (Case
[2015] CAT 14). Against the background of the running IAG
bid timetable, the CAT brought the case on to a hearing 15
days from the application, and gave judgment dismissing the
application 12 days later.
• Ryanair criticised the CMA for imposing the order while the
original appeal against the CC’s report was not yet resolved.
This ground was withdrawn against reassurance as to the
timing of the intended next steps in the divestiture process.
• Ryanair claimed that the MCC decision and final order
were unlawful because the CMA applied the wrong MCC
test. The CMA should not have analysed whether there
was an MCC but should directly have re-examined the
proportionality of the sell-down remedy in light of the
circumstances at the time of Ryanair’s MCC request. The
CAT found that section 41(3) EA only requires that the
CMA executes its report unless there has been an MCC.
• Ryanair argued that the MCC decision was irrational
because IAG lodged a bid while the CC’s report had
predicted that Aer Lingus would not be able to enter into
* Alec Burnside is a partner in – and Marjolein De Backer is an associate with – Cadwalader, Wickersham &
Taft LLP. The authors are counsel to Aer Lingus.
12
10 November 2015 • Competition Law Insight
2) I want to break free
any M&A transaction. The CAT considered that the MCC
question is one for the CMA to evaluate, which it did
effectively. The Tribunal also pointed to IAG’s bid being
conditional upon Ryanair’s exit.
IAG bid
IAG’s bid for Aer Lingus itself required antitrust approval from
DG Competition and the US Department of Justice (DoJ):
DG Comp
DG Competition’s investigation (M.7541 IAG/Aer Lingus)
focused on the parties’ overlap on the Dublin-London and BelfastLondon routes, both of them flying specifically from Heathrow.
While recognising the city pair analysis from past cases (Ryanair’s
problematic London overlap with Aer Lingus had been a
Stansted/Heathrow issue), the Commission found a particular
closeness of competition between the Heathrow-based operations
of British Airways and Aer Lingus. Notably this was remedied by
slot divestitures at Gatwick, reflecting the interaction of Heathrow
and Gatwick within the London airport system.
IAG also offered so-called special prorate agreements with
advantageous terms for long-haul carriers wanting to attract Aer
Lingus feed from Irish airports for certain long-haul destinations
to/from Heathrow, Gatwick, Manchester and Amsterdam.
Finally, the parties addressed a concern on the Dublin/ShannonChicago routes by offering a similar advantageous prorate
agreement to allow a competitor to build up a sustainable service
on those routes. Phase I clearance was given.
The DoJ
The DoJ aligned its investigation with DG Competition in
timing terms and closed its investigation without action.
Other issues
Distinct from the EU and US antitrust approvals, the CMA
had to bless IAG as a suitable purchaser of the Ryanair stake
for purposes of the UK sell-down. The CMA’s final order
required that the purchaser of the Ryanair share did not raise
any fresh competition issues. As a practical matter, this was
sufficiently addressed via the EUMR clearance.
Competition Law Insight • 10 November 2015
29-hours to takeoff
These multiple strands all came together on 14-15 July 2015
when takeoff lights flashed green from all directions, one after
the other (see diagram below):
• The Supreme Court refused Ryanair permission to appeal
in relation to the CC’s original report.
• DG Competition gave Phase I clearance.
• The CAT upheld the MCC decision and final order.
• The CMA granted Ryanair permission to sell its shares to
IAG.
• The DoJ closed its investigation.
• The CAT refused Ryanair permission to go to the Court
of Appeal.
After legal tussles lasting nine years, all this came together in a
29-hour period. And the following day, Ryanair abandoned its
resistance, voting in favour of the IAG takeover at a
shareholders meeting of Aer Lingus. IAG formally completed
the Aer Lingus transaction in September 2015. Ryanair has
since withdrawn its remaining litigation in Luxembourg
(against DG Competition’s second prohibition decision) and
abandoned an application to the Court of Appeal for
permission to contest the CAT’s July ruling on the CMA’s
MCC decision and order (after protesting loudly in July that it
would continue both cases as a matter of principle).
Conclusion
With the sound of Aer Lingus’s delayed takeoff still receding
into the distance, a full retrospective is a task for a future
article. Many novel points of law have been explored along the
way that other litigants have not thought to pursue. But one
instant lesson: a tactical and well-funded litigant (low-cost
maybe in other areas, but not in fighting losing battles) has
scope to postpone the inevitable for a very long time.
Another lesson: the European Commission’s contemplated
minority shareholding reform should at least address the gap in
article 8(4) EUMR, which disabled it from expelling Ryanair
as an adjunct to the original 2007 prohibition. That
prohibition was not effective to maintain effective
competition, which remained impeded for long years, as
described in the CC report and confirmed by the UK courts.
13