Commission Decision of 30/03/2012 declaring a concentration to be compatible with the common market (Case No COMP/M.6447 - IAG / BMI) according to Council Regulation (EC) No 139/2004 (Only the English text is authentic)

• Published date: 30 March 2012
• Subject Matter: Competition,Concentrations between undertakings

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32012M6447

Commission Decision of 30/03/2012 declaring a concentration to be compatible with the common market (Case No COMP/M.6447 - IAG / BMI) according to Council Regulation (EC) No 139/2004 (Only the English text is authentic)

|EUROPEAN COMMISSION |

Brussels, 30.03.2012

C(2012) 2320

PUBLIC VERSION

MERGER PROCEDURE

To the notifying party: |

Dear Sir/Madam,

Subject: Case No COMP/M.6447 - IAG/ bmi Commission decision pursuant to Article 6(1)(b) in conjunction with Article 6(2) of Council Regulation No 139/2004 [1]

1. On 10 February 2012, the European Commission received notification of a proposed concentration pursuant to Article 4 of the Merger Regulation by which the undertaking International Consolidated Airlines Group ("IAG" - United Kingdom), directly or via its subsidiary British Airways Plc. ("BA"), acquires within the meaning of Article 3(1) (b) of the Merger Regulation sole control of the whole of the undertaking British Midlands Limited ("bmi" – United Kingdom) by way of purchase of shares.

I. The Parties and the Transaction

2. IAG is the holding company of both BA and Iberia Líneas Aéreas de España, S.A. ("Iberia"). The IAG airlines (BA and Iberia) fly to around 200 destinations with a further 200 destinations served under various codesharing relationships. BA’s hub airport is at London Heathrow; it also has base operations at London Gatwick and London City. Iberia’s hub airports are at Madrid Barajas and Barcelona El Prat. Both BA and Iberia are members of the oneworld alliance.

3. bmi is currently owned by Deutsche Lufthansa AG ("LH") through its subsidiary LHBD Holding Limited ("LHBD"). It comprises three principal units, namely a London Heathrow-based mainline business ("bmi Mainline"), a regional business based in Aberdeen ("bmi Regional") and a low cost operation based at East Midlands Airport in the United Kingdom ("bmi baby"). Through its three units, bmi flies to over 70 destinations with more destinations served under various codesharing relationships. bmi is currently a member of the Star alliance.

II. The concentration

4. Pursuant to the sale and purchase agreement signed by IAG, BA, LHBD and LH on 22 December 2011 ("SPA"), IAG will acquire, directly or through its subsidiary BA, all of the issued share capital of bmi (hereinafter the "Transaction"). The Transaction would bring bmi into the oneworld alliance and into IAG's frequent flyer program ("FFP").

5. Although the SPA foresees the eventuality that LH could sell bmi Regional and/or bmi baby to other acquirers prior to the completion of the Transaction, none of the above-mentioned sales has been completed to date. Therefore, for the purpose of this decision, it is considered that the Transaction includes all three principal units in which the bmi business is currently divided (i.e. bmi Mainline, bmi Regional and bmi baby). [2]

6. As a result of the Transaction, IAG would therefore acquire sole control of the whole of bmi. The Transaction thus constitutes a concentration within the meaning of Article 3(1) (b) of the Merger Regulation.

III. Union dimension

1. Identification of the undertakings concerned for the purposes of determining jurisdiction over the Transaction – Calculation of the turnover under Article 5(4) of the Merger Regulation

7. According to the Commission Consolidated Jurisdictional Notice under Council Regulation (EC) No 139/2004 on the control of concentrations between undertakings [3] ('JN'), from the point of view of determining jurisdiction, the undertakings concerned are those participating in a concentration. [4] In case of an acquisition of sole control of an undertaking, the undertakings concerned will be the acquiring undertaking and the target undertaking. [5] On the target's side, the 'undertaking concerned' for determining jurisdiction over the proposed concentration will be bmi. On the acquirer’s side, the 'undertaking concerned' will either be IAG (if the acquisition were made by IAG) or BA (if the acquisition were made by BA). [6]

8. Paragraph 175 JN states that "When an undertaking concerned by a concentration belongs to a group, not only the turnover of the undertaking concerned is considered, but the Merger Regulation requires to also take into account the turnover of those undertakings with which the undertaking concerned has links consisting in the rights or powers listed in Article 5(4) (…)". The question which companies' turnover should be taken into account pursuant to Article 5(4) of the Merger Regulation on IAG's side is examined below:

1.1. On the assumption that IAG is the "undertaking concerned"

1.1.1. The turnover of BA should be added to that of IAG under Article 5(4)(b)(i) of the Merger Regulation

9. The aggregate value of the nominal share capital of BA is £289,541,407. The share capital is represented by three classes of shares: Class A1 and A2 shares (all with a nominal value of £289.7) and Class B shares (with a nominal value of £1). The shares are held as follows:

Shareholder |Class of shares |Number of shares |Nominal value per share |Aggregate nominal value |Percentage in total nominal share capital |

IAG |A1 |896,700 |£289.7 |£259,771,984 |89.7% |

Iberia |A2 |99,308 |£289.7 |£28,769,424 |9.9% |

UK Trustee |B |1,000,000 |£1 |£1,000,000 |0.3% |

10. The above shows that the UK Trustee holds (in numbers) a little bit more than half of the shares. However, the relevant criterion for Article 5(4)(b)(i) of the Merger Regulation is not the number of shares, but the capital they represent (i.e. the nominal value of the shares). The aggregate nominal value of the shares held by IAG represents far more than half of the capital of BA.

11. As a result, it can be concluded that the criterion of Article 5(4)(b)(i) of the Merger Regulation is satisfied and that the turnover of BA should be added to that of IAG.

1.1.2. The turnover of IB should be added to that of IAG, in particular under Article 5(4)(b)(iii), and in subsequent order also under Article 5(4)(b)(iv) and Article 5(4)(b)(ii) of the Merger Regulation

1.1.2. (1) IAG has the power to appoint more than half of the members of the Iberia's board of directors (Article 5(4)(b)(iii) of the Merger Regulation)

12. The Iberia operating company, Iberia Líneas Aéreas de España, Sociedad Anónima Operadora ('IB Opco') [7] , has a board of directors consisting of 11 members [8] . Five of them are directly appointed by IAG and four of them by the Spanish Nationality Entity [9] . The five directors directly appointed by IAG are the CEO of BA [10] , the CFO of IAG and three senior officers of IB Opco. For the two remaining directors, which are the Chairman and CEO of IB Opco, the following specific arrangements are in place with respect to their appointment and removal.

13. IAG has the right to remove the Chairman and CEO of IB Opco. Where a new Chairman or CEO is to be appointed, an ad hoc nominations committee is put in place. This committee consists of persons selected by IAG amongst the existing directors of IAG, BA and Iberia. IAG must select at least one member amongst the directors appointed by the Spanish Nationality Entity but is not constrained as regards the number of members on the committee.

14. The committee will nominate a person for the role (Chairman or CEO as the case may be). While the Spanish Nationality Entity has a formal right of veto over any person so nominated as Chairman or CEO, if it were to do so then IAG may arrange for the nominations committee to nominate another person in accordance with the same procedures or IAG may refer the matter to its own shareholders. [11] In the event of a vote by IAG shareholders on such an appointment, the voting rights of IAG shareholders who are Spanish nationals would be magnified so that they represent a majority of the total voting rights in IAG in relation to that matter. In case of such a dispute between IAG and the Spanish Nationality Entity, should IAG refer the matter to its shareholders, the decision taken by IAG shareholders according to the above-mentioned procedure would be binding. Should the person proposed by the nominations committee be approved by IAG shareholders, that person would be appointed.

15. From the above it is concluded that the criteria of Article 5(4)(b)(iii) of the Merger Regulation are satisfied and the turnover of Iberia should be added to that of IAG because IAG has the power to appoint more than half of the directors of Iberia. It is immaterial at which level of IAG the ultimate decision is taken, or how the voting rights of IAG’s shareholders are weighted in case of a vote, what matters is that IAG has the power to appoint seven of the eleven directors.

16. In subordinate order it is also noted that IAG has the right to manage the affairs of IB Opco Holding in the sense of Article 5(4)(iv) of the Merger Regulation and also de facto has the power to exercise more than half of the voting rights in the sense of Article 5(4)(ii) of the Merger Regulation.

1.1.2. (2) IAG has the right to manage IB Opco's affairs (Article 5(4)(b)(iv) of the Merger Regulation)

17. IAG’s structures provide for the BA and Iberia operating companies to be managed in a balanced way. In this respect, IAG, BA and Iberia have entered into an Assurances Agreement under which they agreed certain assurances and principles in respect of the operation of the business of the IAG Group, with the Nationality Entities having a role in monitoring compliance with the Assurances.

18. The IAG Group Instruction makes clear that the operating companies' decision making is subject to IAG Management Committee approval. A number of listed actions or decisions cannot be taken without the prior approval of the IAG Management Committee. These include development of the strategy for the Group (including IB Opco), including the implementation and...