Court rules EU ban on Aer Lingus takeover valid

EU judges today backed the European Commission’s refusal to allow Ryanair to buy the entire Aer Lingus share capital.

The ban on the low-cost airline’s takeover bid is “valid”, declared the European Court of Justice, dismissing Ryanair’s legal challenge.

The same judges also rejected a separate action by Aer Lingus, which opposed the Commission’s refusal to go one step further and force Ryanair to give up its existing stake in the former state carrier.

The Commission found itself fending off actions by both airlines in a tussle which started when Ryanair bought a 19.16% share in Aer Lingus after it was privatised in 2006.

Soon afterwards Ryanair launched a public bid for the entire share capital - but the Commission declared the proposed merger illegal under EU competition rules.

Ryanair bought more shares anyway, taking its stake to 29.3% – prompting Aer Lingus to ask the Commission to order Ryanair to sell its shareholding.

The Commission rejected the request on the grounds that it has no power under the EU rules to make such an order against a minority shareholder which does not have a controlling power in Aer Lingus.

Today’s judgment backed the Commission’s decision against allowing a Ryanair takeover, on the grounds that the merger would “significantly impede effective competition as a result of the creation of a dominant position on a number of (air) routes from or to Dublin, Cork and Shannon.”

Those dominant positions in the Irish airline sector were enough in themselves to justify the Commission’s decision that a merger between Ryanair and Aer Lingus would be incompatible with the common market, said the judges.

But the Commission was also right, the judgment went on, in refusing to order Ryanair to divest itself of its existing shareholding in Aer Lingus, because the size of the stake did not confer control of the company.

“In the absence of effective control by Ryanair over Aer Lingus, Ryanair’s shareholding cannot be likened to a merger which has already arisen, which would give the Commission the right to act,” added the judgment.

Colm Barrington, Aer Lingus chairman, welcomed the takeover ruling but expressed disappointment that Ryanair was not ordered to sell off its stake in the airline.

“Today’s rejection by the European Court of Ryanair’s appeal confirms that a takeover of Aer Lingus by Ryanair would harm consumers and lead to higher prices on Irish routes,” Mr Barrington said.

“It is regrettable that the court has not taken this opportunity to take the further step necessary to address the anti-competitive effects of Ryanair’s minority shareholding in Aer Lingus which is contrary to the interests of the majority of our shareholders.”

Ryanair's Michael O'Leary meanwhile welcomed the ruling that Ryanair can not be forced to dispose of its 29.8% shareholding in Aer Lingus.

"This is the third time since 2007 that Aer Lingus has lost appeals on this issue," O'Leary said.

"We note the Court’s decision on our appeal against the EU Commission’s ruling on our 2006 offer for Aer Lingus," he added.

"This will not prevent Ryanair making a future offer for Aer Lingus, but obviously any such offer will have to take account of the court’s detailed ruling.

O'Leary said Ryanair has no immediate plans to make a third offer for Aer Lingus, which in any event would be unlikely to succeed unless the Government decides to sell its 25% stake.

"We continue to believe that the long term financial viability of Aer Lingus can only be secured as part of one strong Irish airline group," he added.

"Unless Aer Lingus finds a strong airline partner then we believe it is doomed to fail because it can’t compete with Ryanair’s low fares, customer service or scale.”

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