Friday, October 11, 2013

EC to Approve Aegean Acquisition of Olympic Air

The European Commission has defied recent precedent by deciding in favor of a proposal by Greece's Aegean Airlines to acquire Olympic Air, creating perhaps an interesting point of comparison to the U.S. Department of Justice's challenge to the proposed merger between American Airlines and US Airways which similarly broke with recent decisions though in the opposite direction.  

The Commission had previously prohibited a merger between the two carriers in 2011, and by opening up a phase II investigation into the most recent proposal, provided cause to believe it would again deny the merger. The Commission has been somewhat forgiving of cross-border airline consolidation within the EU, but has taken a more skeptical view toward mergers between two carriers within the same member state, something that can be seen in both its previous decision on Aegean-Olympic as well as its multiple rejections of a combination between Ireland's Ryanair and Aer Lingus. In a speech explaining the decision, Vice President Joaquin Almunias indicated that the Commission has not changed its philosophy and remains concerned about the likely anticompetitive effects this merger will have on certain routes. In this instance though, the Commission appears to have concluded that its hand were tied by Olympic's precarious financial situation, creating a classic "failing firm defense" case. The key paragraph from the speech:

The detailed investigation revealed that, in contrast to its situation 2 years ago, Olympic today is simply not able to continue operating outside of Aegean. Had Olympic been able to continue operations outside the Aegean group, the decision would have been a prohibition. But now, because of both the on-going economic crisis in Greece and Olympic's very difficult financial situation, Olympic would be forced to leave the market soon, with or without merger. If it were not acquired by Aegean, Olympic would simply shut down. This means that on the 5 problematic routes, Aegean would remain in any event the only player.

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