EU watchdog raises concerns over IAG/Aer Lingus deal

EU officials are likely to have raised competition concerns over Heathrow landing rights and transatlantic routes with Aer Lingus suitor International Consolidated Airlines Group (IAG), in a move that could delay a deal between the two.

The EU Commission’s competition law directorate raised concerns with IAG over some aspects of its €1.4 billion bid for Aer Lingus at a meeting attended by both companies in Brussels days ago.

The mergers watchdog is understood to have questioned whether an IAG takeover of Aer Lingus would hamper competition in the market for valuable landing and take-off slots at London’s Heathrow Airport.

A deal with the Government, that Aer Lingus would retain ownership of its slots and that they would continue to be used to serve routes between the Republic and Heathrow for seven years, was central to getting the coalition to agree to sell the State’s 25.1 per cent stake in the airline last month.

Agreement

It took IAG and Government officials more than three months to negotiate that agreement and the Heathrow guarantees were central to winning support for the takeover from Coalition backbenchers.

The commission is also understood to have raised concerns related to the Dublin-Chicago route at the meeting, which officials called following IAG’s formal notification to Brussels that it is bidding for Aer Lingus.

The fact the commission sought the so-called “state-of- play” meeting means t it has issues with the proposed deal. As a result, over the next few days IAG will have to propose how it intends to tackle the concerns raised by the directorate.

The commission’s move raises the prospect that regulators will extend their phase one investigation, further delaying IAG’s takeover, which it initiated more than six months ago.

Sources have also suggested there is a slight risk the commission could decide to move to a phase two investigation, which would not be completed until after IAG’s offer has lapsed.

Francesca Micheletti of specialised competition law news service, Policy and Regulatory Report (PaRR), said the commission's decision to call the state-of-play meeting was significant, but does not necessarily mean that there is a threat to the takeover.

State of play

“State-of-play meetings do not always take place,” she said. “It means that the commission has some concerns around the deal, but does not mean that it will be blocked, or that they will go to phase two.”

She added that PaRR, which reported that the meeting had taken place, had independent analysis showing the commission is likely to have raised questions about some transatlantic routes and the Heathrow slots.

The commission has already carried out three investigations into the Irish-British air transport markets in response to Ryanair’s bids for Aer Lingus.

It has the option of looking at the Dublin-London routes, where there is the greatest overlap of services, either as an overall market, or weighing them on an airport-by-airport basis.

It was thought that the commission’s familiarity with the market between the two countries and the data it has built up through three investigations would help it complete its investigation relatively quickly.

Sources say the progress of the current investigation will depend on IAG’s response to the issues raised at the meeting.

Along with Dublin-London, IAG airlines and Aer Lingus are competition on routes between Belfast and the British capital, as well as between Ireland and Spain and on transatlantic services.