Ryanair must significantly reduce its shareholding in Aer Lingus and refrain from seeking board representation or further shares, following a decision of the UK Competition Commission (UKCC).
In its final report published on 28 August 2013, the UKCC concluded that Ryanair’s 29.8% stake in Aer Lingus enables it to exercise material influence over the airline’s commercial policy and strategy and weaken its effectiveness. It found that Ryanair could use its shareholding to affect Aer Lingus’s commercial strategy, for example by blocking special resolutions or preventing the sale of valuable London Heathrow slots.
The report confirms the UKCC’s provisional findings published in June that Ryanair’s shareholding could lead to a substantial lessening of competition on routes between Great Britain and Ireland. While acknowledging that Aer Lingus and Ryanair had remained competitive since Ryanair acquired its stake in 2006, the UKCC found that without Ryanair’s shareholding, competition between the airlines on these routes might have been more intense.
UK competition authorities launched the investigation into Ryanair’s shareholding in October 2010 after the European Commission (Commission) decided the shareholding fell outside its jurisdiction. UK competition authorities have greater scope to investigate minority shareholdings than the Commission (although the Commission is currently consulting on proposals to broaden the scope of its powers in this respect).
The UKCC rejected various remedies proposed by Ryanair, including undertakings not to vote against a potential acquisition of Aer Lingus. It considered that a partial divestment represented a more effective and proportionate remedy because at a 5% shareholding, Ryanair could no longer:
- Impede Aer Lingus from merging with another airline
- Block special resolutions
- Block a “squeeze out” of its minority shareholding during a public offer for Aer Lingus
- Prevent the disposal of Aer Lingus’s Heathrow slots
- Use its shareholding as a platform for further bids for Aer Lingus
The remedy is unlikely to be enforced until Ryanair has had the opportunity to appeal to the Competition Appeal Tribunal, which it has indicated it intends to do.
This case illustrates how even non-controlling minority shareholdings can be found to raise serious competition concerns with far-reaching commercial consequences.