Judgments nº T-177/04 of Court of First Instance of the European Communities, July 04, 2006

• Resolution Date: July 04, 2006
• Issuing Organization: Court of First Instance of the European Communities
• Decision Number: T-177/04

(Competition – Concentrations – Regulation (EEC) No 4064/89 – Decision declaring a concentration compatible with the common market – Action brought by a third party – Admissibility – Air transport market – Commitments)

In Case T-177/04,

easyJet Airline Co. Ltd, established in Luton (United Kingdom), represented initially by J. Cook, J. Parker and S. Dolan, Solicitors, and subsequently by M. Werner and M. Waha, avocats, L. Mills, Solicitor, M. de Lasala Lobera and R. Malhotra, avocats,

applicant,

v

Commission of the European Communities, represented by P. Oliver, A. Bouquet and A. Whelan, acting as Agents, with an address for service in Luxembourg,

defendant,

supported by

French Republic, represented by G. de Bergues, acting as Agent, with an address for service in Luxembourg,

intervener,

APPLICATION for the annulment of the Commission Decision of 11 February 2004 declaring the concentration between Société Air France and Koninklijke Luchtvaart Maatschappij NV compatible with the common market, subject to fulfilment of the proposed commitments (Case COMP/M.3280 – Air France/KLM),

THE COURT OF FIRST INSTANCEOF THE EUROPEAN COMMUNITIES (Second Chamber),

composed of J. Pirrung, President, N.J. Forwood and S. Papasavvas, Judges,

Registrar: K. Andová, Administrator,

having regard to the written procedure and further to the hearing on 23 November 2005,

gives the following

Judgment

Legal context

1 Article 1 of Council Regulation (EEC) No 4064/89 of 21 December 1989 on the control of concentrations between undertakings (OJ 1989 L 395, p. 1, as rectified (OJ 1990 L 257, p. 13), and as amended by Council Regulation (EC) No 1310/97 of 30 June 1997 (OJ 1997 L 180, p. 1), as rectified (OJ 1998 L 40, p.17)) provides that that regulation is to apply to all concentrations with a Community dimension, as defined in paragraphs 2 and 3 of that article.

2 Article 4(1) of Regulation No 4064/89 provides that concentrations with a Community dimension are to be notified in advance to the Commission.

3 Article 6(1)(b) of Regulation No 4064/89 provides that where the Commission finds that the concentration notified, although falling within the scope of that regulation, does not raise serious doubts as to its compatibility with the common market, it is to decide not to oppose it and is to declare that it is compatible with the common market (‘phase I’).

4 Article 6(1)(c) of Regulation No 4064/89 provides that if, on the other hand, the Commission finds that the concentration notified falls within the scope of that regulation and raises serious doubts as to its compatibility with the common market, it is to decide to initiate proceedings (‘phase II’).

5 Article 6(2) of Regulation No 4064/89 provides:

‘Where the Commission finds that, following modification by the undertakings concerned, a notified concentration no longer raises serious doubts within the meaning of paragraph 1(c), it may decide to declare the concentration compatible with the common market pursuant to paragraph 1(b).

The Commission may attach to its decision under paragraph 1(b) conditions and obligations intended to ensure that the undertakings concerned comply with the commitments they have entered into vis-à-vis the Commission with a view to rendering the concentration compatible with the common market.’

6 Article 6(3)(b) of Regulation No 4064/89 provides that the Commission may revoke the decision it has taken where the undertakings concerned commit a breach of an obligation attached to that decision.

7 In the Notice on remedies acceptable under Council Regulation (EEC) No 4064/89 and under Commission Regulation (EC) No 447/98 (OJ 2001 C 68, p. 3, ‘the notice on remedies’) the Commission sets out the guidelines which it intends to follow in relation to commitments, and states in particular that:

– the parties are required to show clearly that the remedy restores conditions of effective competition in the common market on a permanent basis (paragraph 6) and from the outset to remove any uncertainties as to the type, scale and scope of the proposed remedy and as to the likelihood of its successful, full and timely implementation by the parties (paragraph 7);

– the basic aim of commitments is to ensure competitive market structures. Commitments which are structural in nature, such as the commitment to sell a subsidiary, are, as a rule, preferable from the point of view of the objective of Regulation No 4064/89, inasmuch as such a commitment prevents the creation or strengthening of a dominant position previously identified by the Commission and does not, moreover, require medium‑ or long‑term monitoring measures. Nevertheless, the possibility cannot automatically be ruled out that other types of commitments may themselves also be capable of preventing the emergence or strengthening of a dominant position. However, whether such commitments can be accepted has to be determined on a case-by-case basis (paragraph 9);

– commitments submitted to the Commission in phase I must be sufficient to clearly rule out ‘serious doubts’ within the meaning of Article 6(1)(c) of Regulation No 4064/89 (paragraph 11);

– where a proposed merger threatens to create or strengthen a dominant position which would impede effective competition, the most effective way to restore effective competition, apart from prohibition, is to create the conditions for the emergence of a new competitive entity or for the strengthening of existing competitors by means of divestiture (paragraph 13);

– the divested activities must consist of a viable business which, if operated by a suitable purchaser, can compete effectively with the merged entity on a lasting basis. Normally a viable business is an existing one which can operate on a stand-alone basis, which means independently of the merging parties as regards the supply of input materials or other forms of cooperation other than during a transitional period (paragraph 14);

– there are cases where the viability of the divestiture package depends, in view of the assets which are part of the business, to a large extent on the identity of the purchaser. In such circumstances, the Commission will not clear the merger unless the parties undertake not to complete the notified operation before having entered into a binding agreement with a purchaser for the divested business, approved by the Commission (paragraph 20);

– whilst being the preferred remedy, divestiture is not the only remedy acceptable to the Commission. There may be situations where a divestiture of a business is impossible. In such circumstances, the Commission has to determine whether or not other types of remedy may have a sufficient effect on the market to restore effective competition (paragraph 26).

8 The Commission Notice on the definition of the relevant market for the purposes of Community competition law (OJ 1997 C 372, p. 5, ‘the notice on market definition’) states that firms are subject to three main sources of competitive constraints: demand substitutability, supply substitutability and potential competition. From an economic point of view, for the definition of the relevant market, demand substitution constitutes the most immediate and effective disciplinary force on the suppliers of a given product, in particular in relation to their pricing decisions (paragraph 13).

Background to the dispute

The companies in question

9 On 11 February 2004, upon the conclusion of phase I, the Commission adopted a decision declaring the concentration compatible with the common market, subject to fulfilment of the proposed commitments, pursuant to Article 6(2) of Regulation No 4064/89 (Case COMP/M.3280 – Air France/KLM) (OJ 2004 C 60, p. 5, ‘the contested decision’). The applicant is a low-cost airline registered in the United Kingdom which offers its services at attractive prices to various destinations in Europe.

10 Air France is an airline established in France which has three main activities: passenger air transport, cargo transport and maintenance services. It operates a hub-and-spoke network, with its principal hub for international operations at Roissy-Charles-de-Gaulle airport (‘CDG’) and its main domestic hub at Paris-Orly airport (‘Orly’). It is also one of the founding members of the SkyTeam alliance, whose other members are Aeromexico, Alitalia, Continental Airlines, CSA Czech Airlines, Delta, Northwest Airlines and Korean Air.

11 KLM is an airline established in the Netherlands with four main activities: passenger air transport, cargo transport, maintenance services and the operation of charter and low-cost scheduled services by its subsidiary Transavia. KLM operates a hub-and-spoke network with its principal hub at Amsterdam-Schiphol airport. It has an alliance with Northwest Airlines covering principally operations on North Atlantic routes.

The administrative procedure before the Commission

12 On 18 December 2003 Air France and KLM notified to the Commission, pursuant to Regulation No 4064/89, a framework agreement signed on 16 October 2003. This agreement provided for the acquisition by Air France of all KLM’s economic interests, together with the gradual acquisition of control of KLM. Air France was to acquire initially 49% of KLM’s voting rights, which would confer a right of veto over KLM’s strategic operations (the adoption of a strategic plan and of the budget and the appointment of senior management), and at a later date the remaining voting rights (‘the merger’).

13 On 23 December 2003, on the basis of Article 11 of Regulation No 4064/89, the Commission sent a request for information about the merger to more than 90 competitors, including the applicant. On 14 January 2004 the applicant submitted its observations.

14 On 21 January 2004, Air France and KLM proposed commitments to the Commission pursuant to Article 6(2) of Regulation No 4064/89. On 23 January 2004 the Commission sent the commitments to the interested parties for their observations. On 30 January and...