EU To Investigate Implication of Canadian Merger

World Airline News, Oct 22, 1999

Citing the threat of oneworld domination in the London-Canada direct route, European Union Competition Commission officials have opted to investigate the American Airlines-backed Onex Corp. offer to purchase Air Canada.

In a statement issued by the office of Competition Commissioner Mario Monti, Oct. 18 the EC said: "The proposed merger would reduce the number of scheduled airlines operating direct services from three to two on five routes to and from Heathrow (and) Toronto, Vancouver, Montreal, Ottawa and Calgary. Although the main focus is on North America, it also has potential effects on competition in the European Union regarding trans-Atlantic flights." Only the two Canadian carriers and British Airways (BA) are permitted to serve the routes under the current bilateral agreement.

BA's role, as anchor to oneworld, is central to the EC investigation. "Oneworld would become the only alliance whose members serve London-Canada direct," warned the EC. It also said that it would be investigating Air Canada's claims that the merger of the two airlines in a front by American Airlines, which is contributing heavily to the Onex bid, to take over Canadian airspace. American has continually denied this claim.

American's close relationship with BA also concerns the EC. "Inquiries suggest that potential competitors may experience difficulty in obtaining appropriate takeoff and landing rights at Heathrow," it said.

Current oneworld partners also includes Canadian Airlines. The addition of Air Canada would almost guarantee a monopoly over the Atlantic. EU officials said they have four months to complete the investigation and decide if the Onex bid violates anti-trust laws.

"Alliances may well make life easier for the traveler," added Monti. "Yet only if alliances face head-on competition will their benefits come at a fair price."

The investigation, which had acted as a slight diversion from the Air Canada counter bid, would not affect the on-going process, and would not delay the scheduled Nov. 8 Air Canada shareholder meeting, according to Onex's Nigel Wright. "This is a normal procedural step in matters of this importance, which follows the pre-transaction filing Onex was required to make in Europe when it launched the takeover bid," said Wright in a statement.

"We will continue to cooperate with the (European) Commission's review and believe we can fully satisfy their concerns," he added. It is understood that lawyers will travel to Europe to argue for Onex.