UK inquiry takes Ryanair by surprise

BRITISH COMPETITION watchdog the Office of Fair Trading (OFT) has surprised Ryanair by announcing an investigation into the airline’s 29.8 per cent stake in Aer Lingus.

Ryanair disputed the OFT’s jurisdiction, claiming the case was “legally out of time” and set “an alarming precedent” for mergers involving non-UK companies.

The OFT’s merger investigation comes four years after the share purchase was completed. Its decision to investigate the deal follows confirmation by the European General Court that the European Commission does not have the power to force Ryanair to sell down its minority shareholding because the stake did not confer it with “decisive influence” on the commercial policy of its rival.

However, the OFT has a lower threshold of influence and can force Aer Lingus’s biggest shareholder to divest some, or all, of its stake if it finds that it has “material influence” and that this influence raises competition issues.

In a statement, Aer Lingus welcomed the OFT’s move and said it would “co-operate in full”. A spokeswoman said the airline had “no comment” beyond its statement when asked if it had requested that the OFT examine Ryanair’s stake.

Ryanair confirmed it had been contacted by the OFT in recent weeks. Chief executive Michael O’Leary said its lawyers would liaise directly with the OFT to bring the “unnecessary query” on “a non-existent issue” to an early conclusion. “We are surprised at this OFT query into a failed merger offer between two non-UK companies, some four years after the offer,” Mr O’Leary said.

The OFT’s move was not expected, as the British body had not previously signalled any interest in the case.

After buying a stake in Aer Lingus in 2006, Ryanair made a public bid for the entire shareholding in October of that year. The European Commission investigated the bid and decided to prohibit it in June 2007 – a decision Ryanair unsuccessfully appealed.

However, then EU competition commissioner Neelie Kroes stated at the time that Ryanair was “not in a position to exert de jure or de facto control over Aer Lingus” and so it could not order Ryanair to divest the stake.

Aer Lingus later appealed this part of the commission’s finding, but the European General Court confirmed in July that EU authorities did not have the power to oblige Ryanair to sell the shares.

Under UK legislation, the OFT can investigate mergers within four months of their completion or within four months of the end of the European Commission’s involvement. Such investigations often take place following a complaint by a competitor.

Both Ryanair and Aer Lingus operate heavy flight schedules on several routes between Ireland and Britain, in particular on the Dublin-London route. If a merger results in “a substantial lessening of competition within any market or markets in the UK”, the OFT can refer it to the UK Competition Commission.

Earlier this year, this body ordered BSkyB to sell down its stake in ITV, from 17.9 per cent to less than 7.5 per cent. However, airline sector analysts do not expect this precedent to be repeated in the case of Ryanair.

The OFT will make its decision within 40 working days, or by December 24th. Yesterday, it invited comments from third parties, which must be submitted by November 12th.