Brussels Imposes Stricter Rules on Airline Takeovers

Airline Takeovers

This article was last updated on October 17, 2023

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EU Takes Action to Ensure Competition and Passenger Choice

Airlines that take over a peer will soon have to comply with stricter EU rules. Concerns about limited competition on some routes have prompted European Commissioner Didier Reynders to announce stricter regulations in an interview with the Financial Times.

In the event of a takeover, the EU executive often requires the companies to sell specific take-off and landing slots to competitors. This measure, known as a “slot lock,” aims to maintain a healthy level of competition and provide ample choices for passengers.

However, Reynders highlights that airlines do not always sell the slots that raise competition concerns, rendering the current policy inefficient.

Guaranteed Slot Sale

Brussels intends to introduce a new requirement for merging airlines to guarantee the sale of these slots in the future. Additionally, regulators will have the authority to ask companies to divest certain assets, such as air cargo parts, aircraft, or contracts with airport handling companies.

This move comes as the European aviation sector witnesses a new wave of acquisitions and consolidation following the devastating impact of the COVID-19 pandemic on airlines, making independent survival challenging.

For instance, Air France-KLM recently acquired a 20 percent stake in Scandinavian peer SAS as part of a rescue operation. Similarly, earlier this year, the German group Lufthansa became the majority owner with a 41 percent stake in the Italian national airline ITA.

The Portuguese company TAP is also up for sale, attracting interest from entities such as Air France-KLM and the parent company of British Airways, IAG.

Boosting Competition and Protecting Consumer Interests

The new rules aim to address concerns about monopolistic tendencies and ensure fair competition in the airline industry. By enforcing the sale of critical slots and assets during mergers and takeovers, the European Union seeks to maintain a diverse and competitive market that benefits travelers.

With the resumption of air travel after the pandemic-induced restrictions, the aviation sector has witnessed increased consolidation activities. While these acquisitions may provide some stability to struggling airlines, there is a need to balance industry consolidation with consumer interests.

Furthermore, the aviation industry plays a crucial role in the overall economy, supporting numerous jobs and fostering connectivity across Europe and beyond. Therefore, it is vital for regulators to monitor and intervene when necessary to ensure a level playing field and prevent undue concentration of power.

Challenges and Opportunities

While the new rules provide a framework to protect competition, they also require careful implementation and monitoring. Insufficient enforcement or loopholes could undermine the intended purpose of the regulations.

Additionally, the stricter rules may have an impact on the pace and ease of future mergers and acquisitions in the European aviation sector. Companies planning takeovers will need to carefully consider the potential divestment requirements and ensure compliance to avoid delays or complications in the approval process.

However, the new regulations also create opportunities for smaller airlines and new market entrants. The enforced sale of slots and assets could provide a chance for these players to establish themselves in the market, promoting innovation and diversifying options for passengers.

Paving the Way for a Competitive Aviation Industry

By imposing stricter rules on airline takeovers, the European Union aims to maintain a competitive aviation industry that prioritizes consumer choice and fair competition. The requirement for guaranteed slot sales and divestment of assets during mergers will ensure greater market openness and prevent the creation of dominant players.

With careful implementation and monitoring, these regulations have the potential to strike a balance between industry consolidation and protecting consumer interests. The European aviation sector can then emerge stronger, more resilient, and ready to cater to the evolving needs of travelers.

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