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EU Role In US Airline Mergers  
User currently offlineMasseyBrown From United States of America, joined Dec 2002, 5463 posts, RR: 7
Posted (6 years 8 months 4 weeks 1 day 20 hours ago) and read 2612 times:

I think the US business community was at least a little shocked when the EU's objections derailed the GE-Honeywell merger in 2001. How surprising might it be to see the EU wade into the thicket of US airline mergers? A UA-DL combination could result in a surviving carrier with a dominant share of the transatlantic market in JFK, ATL, ORD, and IAD.

I'd like to ask the European posters to comment on the likelihood of an EU intervention and the form it might take.

[Edited 2008-01-07 09:30:44]


I love long German words like 'Freundschaftsbezeigungen'.
13 replies: All unread, jump to last
 
User currently offlineIkramerica From United States of America, joined May 2005, 21534 posts, RR: 59
Reply 1, posted (6 years 8 months 4 weeks 1 day 20 hours ago) and read 2596 times:

The EU carriers can also merge. KL/AF/AZ will have a dominant position at CDG/ORY/FCO/AMS so there is less of a case, right?


Of all the things to worry about... the Wookie has no pants.
User currently offlineANother From , joined Dec 1969, posts, RR:
Reply 2, posted (6 years 8 months 4 weeks 1 day 20 hours ago) and read 2562 times:

Well the Directorate General for Competition (DG-COMP) of the European Commission could require a review.

DG-COMP traditionally looks at Markets (meaning city-pairs) in their analysis. Domination at a single hub would not necessarily attract their attention but domination of a certain city-pair could. Since DL / UA don't have exclusive service on any city-pair (please correct me if I'm wrong), at least for services to/from Europe, I see it unlikely that DG-COMP would show much interest. A DL/NW merger would be the same.

Ironically DG-COMP has been seeking consolidation - while this reduces the number of competitors they believe that the offsetting consumer benefits outweigh any reduction in competition.

Even if they did intervene they would more likely look for 'solutions', such as giving up slots at restricted airports to be used in markets where competition is reduced, than seek to block. i.e. In approving AF/KL they required these airlines give up slots at CDG/AMS to any/all airlines seeking to operate between the two airports. Funny, no-one applied.

Please note - this is my opinion of the views of DG-COMP. I do not share them!


User currently offlineA342 From Germany, joined Jul 2005, 4683 posts, RR: 3
Reply 3, posted (6 years 8 months 4 weeks 1 day 20 hours ago) and read 2562 times:



Quoting Ikramerica (Reply 1):
KL/AF/AZ will have a dominant position at CDG/ORY/FCO/AMS

That's true, but even before the merger, they were in the same alliance, weren't they? I know it's an exaggeration, but it can be said that their cooperation is just a bit closer now.

I don't see why UA and DL should merge, but if it happens, they'd have to settle for ONE alliance. In that case, the EU might target the alliance as a whole and might force the members to sell off slots at important slot-restricted airports in the EU.

This is just my  twocents , don't shoot me!  Smile



Exceptions confirm the rule.
User currently offlineMasseyBrown From United States of America, joined Dec 2002, 5463 posts, RR: 7
Reply 4, posted (6 years 8 months 4 weeks 1 day 20 hours ago) and read 2546 times:

Well, that is the EU permitting mergers among its own constituents. Maybe it will be different if the mergers are among foreign firms doing business in Europe and perceived to be an economic threat.

For example, the EU allowed and encouraged the formation of EADS, but said no to much smaller GE-Honeywell.



I love long German words like 'Freundschaftsbezeigungen'.
User currently offlineIkramerica From United States of America, joined May 2005, 21534 posts, RR: 59
Reply 5, posted (6 years 8 months 4 weeks 1 day 20 hours ago) and read 2510 times:



Quoting A342 (Reply 3):
In that case, the EU might target the alliance as a whole and might force the members to sell off slots at important slot-restricted airports in the EU.

The only consistent thing would be to force them to give up slots to fly between the hubs, similar to the way they did with the KL/AF merger. And just like there, nobody is going to bite. Not even if they were pushing even harder for cabotage would BA or AF want to fly between DEN and ATL...  Wink

Oh, and since we don't actually have slots, it wouldn't make sense. Nothing is stopping any EU carrier from starting new flights to ATL or DEN now, so how does a hypothetical UA/DL merger make it harder? (just an example, don't get in a huff all you DL and UA fans)

Quoting MasseyBrown (Reply 4):
Well, that is the EU permitting mergers among its own constituents. Maybe it will be different if the mergers are among foreign firms doing business in Europe and perceived to be an economic threat.

For example, the EU allowed and encouraged the formation of EADS, but said no to much smaller GE-Honeywell.

And it just proves the hypocrisy (and don't get me wrong, the EU is not alone in this department). The idea that any foreign governing body can stop a merger like that is a bit sketchy. They could ask for divestment for the specific markets the merger influences, but otherwise, it isn't their business. We saw this with the dubai ports thing, where our government, rightly or wrongly, reacted by demanding that dubai ports sell off some assets, and this was after the merger/buyout with P&O was already done.



Of all the things to worry about... the Wookie has no pants.
User currently offlineA342 From Germany, joined Jul 2005, 4683 posts, RR: 3
Reply 6, posted (6 years 8 months 4 weeks 1 day 19 hours ago) and read 2483 times:



Quoting Ikramerica (Reply 5):
Oh, and since we don't actually have slots, it wouldn't make sense. Nothing is stopping any EU carrier from starting new flights to ATL or DEN now, so how does a hypothetical UA/DL merger make it harder?

I don't quite get your point, but we do have slots here in Europe.



Exceptions confirm the rule.
User currently offlineBlueFlyer From United States of America, joined Jan 2006, 4024 posts, RR: 2
Reply 7, posted (6 years 8 months 4 weeks 1 day 19 hours ago) and read 2471 times:
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Quoting MasseyBrown (Reply 4):
For example, the EU allowed and encouraged the formation of EADS, but said no to much smaller GE-Honeywell.

Size isn't so much the issue as is the merger's effect on competition within a particular industry. The EU found that the merger of GE and Honeywell presented too much vertical integration in the avionics and aircraft engine markets, for instance, and that the combined entities could use their products to lock out competitors (for instance, GE engines could be made to work only with Honeywell engine starters). The same issue isn't apparent with EADS.



I've got $h*t to do
User currently offlineANother From , joined Dec 1969, posts, RR:
Reply 8, posted (6 years 8 months 4 weeks 1 day 19 hours ago) and read 2466 times:



Quoting MasseyBrown (Reply 4):
For example, the EU allowed and encouraged the formation of EADS, but said no to much smaller GE-Honeywell.

I think this comparison is mixing apples and asparagus. In the GE-Honeywell case the EC's view was that the merger would result in the removal of all competition for certain products/services - The consolidation of European airframe manufacturers did not have the same effect - there was always Boeing and IIRC MD at the time, who, depending on your point of view, continued to offer competing products/services.


User currently offlineMasseyBrown From United States of America, joined Dec 2002, 5463 posts, RR: 7
Reply 9, posted (6 years 8 months 4 weeks 1 day 19 hours ago) and read 2442 times:



Quoting Ikramerica (Reply 5):
The idea that any foreign governing body can stop a merger like that is a bit sketchy. They could ask for divestment for the specific markets the merger influences, but otherwise, it isn't their business.

Well, that's exactly what EU did with GE - they imposed conditions that GE declined to accept; merger off. Somewhat analagous was the US Govt's action on BA/AA antitrust immunity, unacceptable terms; deal off.

I don't believe the mergers in the US are in the interests of BA, AF, and LH, all of which would like to be in the US market. This assumes, of course, that the mergers would be successful and produce stronger survivors. It's in the European carriers' interests to see smaller and weaker US carriers that they can pick off, at bargain prices as ownership rules are relaxed; and I believe they will attempt to prevent any merger that interferes with that plan. (That's what I'd do.  Smile )



I love long German words like 'Freundschaftsbezeigungen'.
User currently offlineJohnnybgoode From Germany, joined Jan 2001, 2187 posts, RR: 6
Reply 10, posted (6 years 8 months 4 weeks 1 day 16 hours ago) and read 2296 times:

here's some official background information, but don't ask for a source, it's been in my files for years. as a matter of fact, i found it (perhaps on a.net?) at the time when UA and US planned their merger some years ago.

'Although the merger involves U.S. companies, EU law requires the Commission to review the deal because the companies meet minimum sales thresholds. All deals involving companies with Europe-wide sales of at least 250 million euros ($214.5 million) each and combined annual worldwide sales totaling at least 5 billion euros ($4.3 billion), must be cleared by the Commission, regardless of where they are based.'

i don't know if the EU commission could block such a merger or if the merged entity would not receive access to the EU markets, i'm not sure about that.



If only pure sweetness was offered, why's this bitter taste left in my mouth.
User currently offlineANother From , joined Dec 1969, posts, RR:
Reply 11, posted (6 years 8 months 4 weeks 1 day 16 hours ago) and read 2270 times:



Quoting Johnnybgoode (Reply 10):
i don't know if the EU commission could block such a merger or if the merged entity would not receive access to the EU markets, i'm not sure about that.

Actually they would simply fine the merged entity - up to 10% of their combined turnover (annual revenues). The 'up-to' should be taken with a grain of salt, I don't believe fines have ever been that high - but don't forget they fined Microsoft over 750 million Euros.

In any case such a fine is very unlikely for two reasons - no company would risk such a fine, and DG-COMP only uses fines as a last resort, they always seek agreed 'solutions' well before it gets to this.


User currently offlineAtmx2000 From United States of America, joined Oct 2004, 4576 posts, RR: 37
Reply 12, posted (6 years 8 months 4 weeks 1 day 13 hours ago) and read 2184 times:



Quoting ANother (Reply 2):
DG-COMP traditionally looks at Markets (meaning city-pairs) in their analysis. Domination at a single hub would not necessarily attract their attention but domination of a certain city-pair could. Since DL / UA don't have exclusive service on any city-pair (please correct me if I'm wrong), at least for services to/from Europe, I see it unlikely that DG-COMP would show much interest. A DL/NW merger would be the same.



Quoting ANother (Reply 2):
In approving AF/KL they required these airlines give up slots at CDG/AMS to any/all airlines seeking to operate between the two airports. Funny, no-one applied.



Quoting MasseyBrown (Reply 9):
Somewhat analagous was the US Govt's action on BA/AA antitrust immunity, unacceptable terms; deal off.

It is highly unlikely any domestic merger is going to result in any international antitrust issues except in relationship to the international alliance partnerships. With the issue being primarily dominance on important international city-pair routes, all the US' or a given EU country's airlines will generally have 40% to 60% marketshare given that these routes were regulated to divvy up marketshare between the airlines of the countries. A domestic merger generally will not create overly dominant marketshare on any important route because the foreign airline usually has a very large marketshare. The only possible issue I see is if a domestic merger results in an US airline with significant marketshare on a very high volume transatlantic city-pair joining the alliance containing the European airline hubbed at the European end of that same city-pair.

Quoting MasseyBrown (Reply 4):
For example, the EU allowed and encouraged the formation of EADS, but said no to much smaller GE-Honeywell.

GE-Honeywell small? At the time of the merger proposal, Honeywell's revenues were only around 10% less than EADS. GE's revenues were 4.5 times larger. The combined company would have had annual revenues approaching $150 billion dollars.

Quoting ANother (Reply 8):
The consolidation of European airframe manufacturers did not have the same effect - there was always Boeing and IIRC MD at the time, who, depending on your point of view, continued to offer competing products/services.

The thing with EADS is that it is dealing with a bunch of individual monopsonies in the defense sector (the governments) and in the civil sector it doesn't really change anything competition wise because Airbus and Boeing were still there (the MD-Boeing merger already occurred). Plus the companies merged into EADS were already coordinating activities.

Quoting ANother (Reply 8):
In the GE-Honeywell case the EC's view was that the merger would result in the removal of all competition for certain products/services

Loss of competition had basically nothing to do with the rejection. GE and Honeywell had minimal overlap in their businesses, and GE was willing to divest overlapping business. The whole issue with the merger was bundling and whether GE would be able to leverage business in one aviation area to win business in another. The idea was that GE could use their strength in aviation finance and aircraft engines and Honeywell's avionics to increase business for all of them. This was what drove GE's interest in the merger and what caused GE's competitors and customers (US and European) to run scurrying to the EU. The EU rejected the merger unless GE made concessions it wasn't willing to make based on some notion that these synergies would give GE some sort of overwhelming advantage. This was a dubious argument IMHO, as the combined company would only be dominant in maybe a few sectors of those major areas, and to leverage one area to gain a significant advantage in another one really needs a extremely dominant position. Moreover, the customers for those areas of business which GE was dominant weren't necessarily the same. Avionics would be specified by aircraft manufacturers and engines could be specified by the airline in many cases. And in aircraft financing there are so many companies, one does not have to deal with GE.



ConcordeBoy is a twin supremacist!! He supports quadicide!!
User currently offlineMasseyBrown From United States of America, joined Dec 2002, 5463 posts, RR: 7
Reply 13, posted (6 years 8 months 4 weeks 1 day 8 hours ago) and read 2126 times:



Quoting Atmx2000 (Reply 12):
GE-Honeywell small? ... The combined company would have had annual revenues approaching $150 billion dollars.

Touché. I was thinking only of their European subsidiaries.



I love long German words like 'Freundschaftsbezeigungen'.
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