Lufthansa Scores at EU Court on Merger Terms

(CN) – The European General Court ruled against regulators Wednesday for shirking their responsibility to ensure that merger conditions placed on the German airline giant Lufthansa and Swiss International Air Lines remain necessary.

Lufthansa and Swiss had submitted their request to the European Commission in November 2013, saying they should no longer need to abide by fare commitments imposed on them in 2005 when the commission cleared their merger.

At the time, only Swiss and partners of Lufthansa’s Star Alliance were operating on two routes, Zurich-Stockholm and Zurich-Warsaw, and both the Zurich and Stockholm airports suffered from congestion.

The European Commission concluded that fare commitments should be adopted to ensure competition: namely that the merged entity Lufthansa-Swiss would have to apply an equivalent price reduction to fares on the ZRH-STO and ZRH-WAW routes each time it reduced a published fare on a comparable reference route.

As soon as any new airline began operations on the routes, the fare commitments would expire.

Lufthansa and Swiss argued in 2013 that the fare commitments should be re-evaluated on the basis of competition that the Swiss was said to be facing from Scandinavian Airlines System and Polskie Linie Lotniczee LOT SA.

Two other grounds that the airlines raised with the commission was the termination of their 1995 joint-venture agreement and new policy changes at the commission when it comes to alliance partners in the context of merger review.

Instead of waiving the fare commitments, however, the European Commission concluded in 2016 that the airlines failed to offer any basis for it to review the terms.

The European General Court determined Wednesday, however, that the commission had a duty to undertake a careful examination, and that it failed in that respect.

Citing precedent from another court case involving Lufthansa and Brussels Airlines, the ruling says the ensuing policy change when it comes to alliance partners demanded careful examination that the commission did not provide.

The ruling calls such failures “regrettable” when it comes to the Zurich-Warsaw route, and a “manifest error” as regards the Zurich-Stockholm route.

Regarding the latter, the ruling says the commission “ failed to take into account all the relevant information and that the matters relied on in the contested decision are not capable of justifying the rejection of the waiver request relating to the ZRH-STO route.”

“Accordingly, the contested decision must be annulled in so far as it concerns the ZRH-STO route and there is no need to consider the other pleas and arguments put forward by the applicant,” the ruling continues. “However, those other pleas and arguments must be examined in so far as they relate to the legality of the contested decision as regards the ZRH-WAW route.”

The Luxembourg-based court dismissed the remainder of the action.

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