EU merger control and the margin of discretion granted to the European Commission under EU merger control
On 20 October 2021, the General Court of the European Union (General Court) handed down judgments in Cases T-296/18 and T-240/18 regarding actions brought by Polskie Linie Lotnicze ‘LOT’ SA, to challenge the European Commission's (Commission) decisions approving the acquisition by easyJet and Lufthansa of assets of the Air Berlin Group.
In 2016, Air Berlin plc implemented a restructuring plan in light of deteriorating financial circumstances. On 16 December 2016, it agreed with Lufthansa’ to sublet to it various aircraft and crew; the loss of the financial support granted to Air Berlin by a shareholder resulted in it filing for insolvency on 15 August 2017.
Subsequently, a 13 October 2017 agreement provided for the takeover by Lufthansa of a subsidiary of Air Berlin, to which various aircraft and their crew, as well as slots that Air Berlin held at a number of airports (e.g. Düsseldorf, Zurich, Hamburg, Munich, Stuttgart and Berlin-Tegel) were to be transferred. There was also an agreement on 27 October 2017 with easyJet to transfer Air Berlin slots (e.g. at Berlin-Tegel). Air Berlin then ceased its operations and was declared insolvent on 1 November 2017.
In the light of commitments given by Lufthansa, the Commission found the merger notified by Lufthansa to be compatible with the EU Merger Regulation as it did with the merger notified by EasyJet in December 2017. The Commission concluded that the mergers in question did not raise serious doubts as to their compatibility with the internal market. The Commission did not define the relevant markets by city pairs between a point of origin and a point of destination (‘O&D markets’) and made the following main findings -
- Air Berlin had ceased its operations prior to and independently of those mergers - Air Berlin had withdrawn from all the O&D markets in which it had previously been present.
- The notified mergers mainly concerned the transfer of slots and found that those slots were not allocated to any particular O&D market. Consequently, it aggregated, for the purposes of its analysis, all the O&D markets to and from each of the airports with which those slots were associated. In doing so, it defined the relevant markets as those for air passenger transport services to and from those airports.
- The Commission then verified that those notified mergers were not such as to create ‘a significant impediment to effective competition’ (i.e. the EU Merger regulation substantive test), in particular, by providing easyJet and Lufthansa, respectively, with the ability and incentive to foreclose access to those markets.
LOT brought two actions before the General Court, each seeking the annulment of one of the contested Commission decisions.
What did the General Court decide?
On 20 October 2021, the General Court dismissed those actions and accepted that the Commission could confine itself to a joint examination of the O&D markets to and from the airports with which Air Berlin’s slots were associated, instead of examining individually each of the O&D markets in which Air Berlin, on the one hand, and Lufthansa and easyJet, on the other, were present. It was wrong for LOT to seek to challenge the factual accuracy of the presentation, made by the Commission, of the mergers in question and of their context. The General Court observed, inter alia, that the Commission was entitled to find that Air Berlin’s operations had ceased prior to the mergers in question and independently of them, and that, as a result, Air Berlin was no longer present in any O&D market.
Next, in so far as Air Berlin’s slots were not associated with any O&D market, the General Court considered that the Commission rightly pointed out that the slots could be used by Lufthansa and easyJet, respectively, in O&D markets other than those in which Air Berlin operated. Consequently, the General Court held that, unlike mergers involving airlines which are still in operation, it was not certain that the mergers would have any effect on competition in the O&D markets in which Air Berlin had been present before it ceased its operations.
In the second place, with respect to the plea alleging a manifest error in the assessment of the effects of the mergers in question, the General Court said that, when exercising the powers conferred on it by the EU Merger Regulation, the Commission has a certain discretion, especially regarding complex assessments of an economic nature which it is called upon to make in that regard. Therefore, review by the EU Courts of the exercise of that discretion must take account of the margin of discretion conferred on the Commission. The Commission's analysis of the effects of the mergers in question on the markets of air passenger transport services to and from the airports concerned did not reveal any manifest error of assessment (e.g. due to the low rate of congestion at those airports and the limited effect of those mergers on the increase in the slot shares held by Lufthansa and EasyJet). The General Court also rejected the complaints alleging that the commitments given by Lufthansa in were insufficient.
The margin of appreciation given to the Commission in its EU Merger Regulation decisions is a key feature of the decision-making process. It remains to be seen if the Irish Courts would give the same level of discretion to merger control decisions of the Competition and Consumer Protection (CCPC) under the Competition Act and in particular the new powers that will be accorded to the CCPC as a result of the ECN+ Directive and to be reflected in the Competition (Amendment) Bill.
For more information on this topic please contact Alan McCarthy, Partner or any member of A&L Goodbody's EU, Competition & Procurement team.
Date published: 6 December 2021