Unless it can be shown that the takeover will 'significantly impede effective competition' it is likely to be approved, writes Declan Walsh
Any proposed takeover of Aer Lingus by Ryanair is likely to require the approval of the European Commission. Since 1990 the European Commission has had control over what is termed "concentrations having a Community dimension" and its powers currently arise under the European Community Merger Regulation which came into force in May 2004.
Where a merger or a takeover above a certain size is proposed, it is the commission, rather than any relevant national authority, that may have the sole decision making responsibility. It is effectively Commissioner Neelie Kroes as EC Competition Commissioner who will determine the outcome of the proposed takeover.
Since 1990 the commission has received over 3,200 notifications of mergers and takeovers and blocked only 19. In particular, the commission has appeared to look favourably upon airlines coming together and has stressed the benefits to passengers of increased efficiencies. Recent decisions relating to Air France-KLM and Lufthansa-Swiss reflect this view.
However this should not be seen as leading to a carte blanche for all airline mergers and takeovers. Speaking at the University of Leiden in April the commissioner stated that "we cannot ignore the negative effects that airline mergers and takeovers sometimes have on individual markets - in particular for routes connecting the hub-airports of the parties. The commission has a duty to ensure that competition on all markets is maintained".
However, the commission is likely to take a rather benign approach to a proposed Ryanair-Aer Lingus takeover given the nature of the market and recent decisions of the commission. Under the Merger Regulation the commission is obliged to take into account the need to maintain and develop effective competition. In doing this they must consider the actual or potential competition that will exist after the proposed takeover.
So if one considers the Dublin to London route, Ryanair is likely to point out that competition already exists in the form of BMI and City Jet, while there is nothing to stop a carrier such as British Airways entering the marketplace.
They will no doubt further argue that with the market in airline transportation growing so rapidly in Europe and with barriers to entry to the market declining, competition is unlikely to be fettered to any great extent.
Unless it can be shown that the takeover will "significantly impede effective competition" it is likely to be approved.
The timeframe for the determination of the takeover by the commission is between 25 and 35 days, if the commission deems that the takeover is either outside its jurisdiction or is compatible with competition rules. If the commission believes that there are serious potential effects on competition it will launch an investigation which must be concluded within three months.
Less than 10 per cent of all notifications are subject to such an investigation. It will then either approve or prohibit the takeover.
In reality, if the commission has concerns over certain elements of the takeover, it is likely to seek modification of the deal which in the present case might relate to maintaining certain routes or ensuring particular services. If, however, the commission prohibits the takeover, Ryanair has a right of appeal against the decision to the European Court of First Instance based at Luxembourg.
The court has in recent years developed a reputation for being critical of the analysis of markets carried out by the commission which has in part led to the new regime effective since 2004.
Any decision by the commission will focus on potential anti-competitive effects. The commission will adopt a purely economic approach to its decision and will not be influenced by issues such as potential job losses, rates of pay, union recognition or many of the other issues that have been raised since the proposed takeover was announced.
While Commissioner Kroes has in the past stated that she will ensure that the benefits of liberalisation of the airline industry are not cancelled out by anti-competitive mergers, there is a consistent line of decisions from the commission that suggests that the proposed Ryanair takeover of Aer Lingus will receive approval from the commission, and that such a decision will be arrived at relatively quickly.
For Michael O'Leary it will be a short battle rather than a war of attrition.
• Declan Walsh is a lecturer in European Competition Law at the Faculty of Law, University College Cork