Antitrust Law Daily Wrap Up, ANTITRUST NEWS: EC approves Aegean Airlines’ acquisition of Olympic Air despite competition concerns, (Oct 9, 2013)

By Tobias J. Gillett, J.D., LL.M.

The European Commission has approved Aegean Airlines’ €72 million acquisition of fellow Greek air carrier Olympic Air, even though the transaction will grant Aegean a dominant position on five Greek air routes. The EC announced today that the declining financial health of Olympic, and changed competitive circumstances since the EC’s previous decision to block a merger between the airlines, meant the acquisition would cause no competitive harm that would not be caused in the absence of the transaction.

Aegean Airlines currently provides passenger and cargo air transport services on Greek domestic routes and international short-haul routes. It serves approximately 50 destinations, and is a member of the Star Alliance. Olympic Air provides air transport of passengers and cargo to approximately 30 short-haul destinations, mainly within Greece. In 2011, the EC blocked an attempted merger between the airlines, pointing to competition concerns on nine routes where their services overlapped.

In a statement, Joaquin Almunia, Vice President of the European Commission responsible for Competition Policy, explained the EC’s rationale in approving the acquisition two years later. Almunia noted that Olympic’s size had declined from 32 planes, including 15 jets, at the time of the first notification of the previous attempted transaction, to just 14 turboprop aircraft and one jet it was in the process of giving back. The airlines now overlapped on five routes posing competition concerns that had 950,000 passengers in 2012, including three full-year routes (Athens-Mytilene, Athens-Chania, and Athens-Santorini) and two summer routes (Athens-Kos and Athens-Corfu), rather than nine such routes with 4 million passengers in 2011.

The most significant factor, however, was the overall financial status of Olympic. The EC’s investigation of the transaction had revealed that Olympic was “simply not able to continue operating outside of Aegean,” according to Almunia. Olympic’s financial health would have forced Olympic to abandon the market soon, whether or not it combined with Aegean. Olympic’s financial concerns were compounded by the ongoing economic crisis in Greece, which had led to a 26% drop in demand for domestic air passenger transport from Athens from 2009 to 2012, a drop that had continued in 2013 with a 6.3 percent decrease compared to the preceding year. Therefore, Aegean would have been left as the only carrier on the five overlapping routes even if it did not acquire Olympic. Almunia noted that Olympic had “never been profitable since its privatization in 2009,” subsisting on considerable financial support from its sole shareholder, Marfin Investment Group. The EC’s investigation disclosed that it was “extremely unlikely that the company will become profitable in the foreseeable future, under any business plan.”

Finally, Almunia observed that no other credible purchaser had expressed an interest in acquiring Olympic or its assets, and therefore there was “no doubt that the ‘failing firm defense’ scenario can apply and should apply to this case.” Moreover, the EC’s investigation had shown that entry by other airlines on any of the routes in the near future was unlikely, due to the availability of more profitable opportunities elsewhere, high costs of entry, and the problems posed by Greece’s economic position.

Almunia closed his remarks by calling on the EC and the Greek competition authorities to “monitor very carefully any possible abuse of the dominant position that Aegean, for sure, will have on these five routes.”

Aegean Airlines statement. In a press release, Aegean noted that the acquisition would create “the conditions for the establishment of a sustainable Greek carrier, competitive within the Region and capable of supporting a growth momentum which will benefit Greek Tourism and the local economy.”

The airlines expect the acquisition of Olympic’s shares and Aegean’s assumption of management over Olympic to be completed by October 18, at which point Olympic will become a subsidiary of Aegean, although the airlines will retain distinct logos, brands, and flight activities. The combined entity will possess a total of 45 aircraft and 2,090 personnel.

Companies: Olympic Air; Aegean Airlines

News: Antitrust