The OFT accepts undertakings in lieu of reference and clears the Air France Finance-City Jet/VLM Airlines merger
By a recent decision the OFT conditionally cleared the Air France Finance-City Jet/VLM Airlines by accepting the commitments offered by the merging parties as undertakings in lieu of reference provision (decision of 24 October 2008, case ME/3535/08, http://www.oft.gov.uk). The relevance of the decision lies in OFT accepting a set of remedies not wholly mirroring the competition concerns raised during investigations.
In the view of the OFT, the proposed merger, the Air France KLM group (AFKL) acquisition of VLM Airlines, a Belgian regional airliner, may substantially lessen competition in the market for business air transport services constituted by the route linking London City Airport (LCY) and Amsterdam Schipol (AMS). Article 73 of Enterprise Act sets that if the OFT on the basis of evidence collected during the first phase investigation concludes that the reviewed concentration may result in a substantial lessening of competition, it has the duty to refer the merger to the Competition Commission (CC) unless the merging parties proposer suitable remedies. Generally, undertakings in lieu of reference are accepted in straightforward cases when the competition problems and remedies are clear cut.
In order to dispel the competition concerns raised by the OFT, and consequently, to have the proposed merger approved rather than referred to the CC, the parties proposed a set of remedies as undertakings in lieu of reference pursuant to Article 73. The remedies included, among other things, the divestiture of up to three slots and four slots during the morning and the evening peak period at LCY, respectively.
The carrier, Eastern Airways, to which the merging parties intended to transfer the slots on an up-front buyer basis, tabled a more flexible timetable with eight flights evenly spaced throughout the day. Eastern intended to operate only two flights at the morning and evening peak periods, which are less than the three and four flights in the morning and evening peak period, respectively, operated pre-merger.
It was uncertain whether such an arrangement would be considered by the OFT as a suitable undertaking in lieu of reference. According to traditional approach of the OFT, only remedies capable to replicate the competitive constraint lost through the merger are regarded as suitable undertakings in lieu of reference. In this case, however, Eastern intended to fly at peak times a number of frequencies lower than those flown pre-merger. The OFT made it clear that restoration of competition to pre-merger levels do not require to precisely replicate the pre-merger position. Taking into consideration the successful venture of Eastern as regional carrier in the UK market, the OFT considered that the transfer to Eastern of two peak slots in the morning and in the evening, respectively, would be sufficient to restore the quo ante competition dynamics. So, it approved the commitments and conditionally cleared the merger.
In a previous case the Competition Appeal Tribunal stated that the OFT enjoys a certain margin of discretion for the assessment of the suitability of remedies offered by the parties under the undertakings in lieu of reference provision. The Air France Finance-City Jet/VLM Airlines gives a example of such discretion, the OFT has accepted a set of remedies that, though not exactly corresponding to the competition lost because of the merger, appear to substantially restore competition in the market to a degree similar to that of pre-merger markets.
In the view of the OFT, the proposed merger, the Air France KLM group (AFKL) acquisition of VLM Airlines, a Belgian regional airliner, may substantially lessen competition in the market for business air transport services constituted by the route linking London City Airport (LCY) and Amsterdam Schipol (AMS). Article 73 of Enterprise Act sets that if the OFT on the basis of evidence collected during the first phase investigation concludes that the reviewed concentration may result in a substantial lessening of competition, it has the duty to refer the merger to the Competition Commission (CC) unless the merging parties proposer suitable remedies. Generally, undertakings in lieu of reference are accepted in straightforward cases when the competition problems and remedies are clear cut.
In order to dispel the competition concerns raised by the OFT, and consequently, to have the proposed merger approved rather than referred to the CC, the parties proposed a set of remedies as undertakings in lieu of reference pursuant to Article 73. The remedies included, among other things, the divestiture of up to three slots and four slots during the morning and the evening peak period at LCY, respectively.
The carrier, Eastern Airways, to which the merging parties intended to transfer the slots on an up-front buyer basis, tabled a more flexible timetable with eight flights evenly spaced throughout the day. Eastern intended to operate only two flights at the morning and evening peak periods, which are less than the three and four flights in the morning and evening peak period, respectively, operated pre-merger.
It was uncertain whether such an arrangement would be considered by the OFT as a suitable undertaking in lieu of reference. According to traditional approach of the OFT, only remedies capable to replicate the competitive constraint lost through the merger are regarded as suitable undertakings in lieu of reference. In this case, however, Eastern intended to fly at peak times a number of frequencies lower than those flown pre-merger. The OFT made it clear that restoration of competition to pre-merger levels do not require to precisely replicate the pre-merger position. Taking into consideration the successful venture of Eastern as regional carrier in the UK market, the OFT considered that the transfer to Eastern of two peak slots in the morning and in the evening, respectively, would be sufficient to restore the quo ante competition dynamics. So, it approved the commitments and conditionally cleared the merger.
In a previous case the Competition Appeal Tribunal stated that the OFT enjoys a certain margin of discretion for the assessment of the suitability of remedies offered by the parties under the undertakings in lieu of reference provision. The Air France Finance-City Jet/VLM Airlines gives a example of such discretion, the OFT has accepted a set of remedies that, though not exactly corresponding to the competition lost because of the merger, appear to substantially restore competition in the market to a degree similar to that of pre-merger markets.
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