Anti-Monopoly Office clears airline-airport merger

The merger of Czech Airlines (ČSA) and Prague Airport into a single joint-stock company, Český aeroholding (ČA), was approved by the Anti-Monopoly Office (ÚOHS) Oct. 25 in a decision officials said was particularly difficult and was contingent upon a commitment from the company that the merger would not threaten market competition.

"What would be important in this case is the vertical integration," Radovan Kubáč, an attorney specializing in commercial law at the Schönherr law firm in Prague. "Such a merger is OK if the vertical integration is not so high that it would exclude other airlines from their access to the Prague Airport."

And it is just this concern that raised questions from potential competitors.

"If the merger can threaten competition, then the competition authority can say, 'OK, we will allow a merger, but you have to sell some of your subsidiaries or transfer some of your activities to another subsidiary and then subsequently sell the subsidiary," Kubáč added.

The ÚOHS said the decision was final, which means third parties cannot object to the merger, though Kubáč said they can continue to raise complaints about competition later on if necessary.  

"Given the fact that the concentration aroused serious concerns from a significant distortion of competition in some markets, we suggested adopting a set of part obligations in favor of maintaining effective competition," read a statement from the ÚOHS following the merger's approval.

ÚOHS spokesman Kristián Chalupa said the specific conditions imposed to clear the deal could not be revealed "on the grounds of trade secret."

Representatives from ČSA and Prague Airport would not comment on what those conditions were.

Although there are other European airports where there are instances of minority stakes and ownership between airlines and airports, the ČA structure is unique in that both the airport and airline are majority-owned by the state, which has caused some to question the merger's effect on transparency and competition.

"Prague Airport will act as it acts today, so it will continue to provide a single price policy for all air carriers, including an extensive incentive program, will communicate transparently and, in an effort to provide equal access for all, has no intention of changing its policy," said Prague Airport spokeswoman Michaela Lagronová.  

The merger is meant to prop up the ailing ČSA after a failed attempt at privatization in 2009, where bidder dropped out fearing the firm's extensive debt obligations. The Finance Ministry has said it wants to sell a significant stake in the airport or find an investor after the restructuring period ends in 2012.  

Currently, European Commission is investigating the restructuring of ČSA because of a loan granted to ČSA under "allegedly preferential conditions," where the state provided ČSA with collateral for a commercial loan. The EC said any state aid "must be accompanied by a restructuring plan that will restore the long-term viability of the company on the basis of realistic assumptions."

The merger plan approved by the ÚOHS involves the consolidation of charter transport, air-traffic control and management for passengers and cargo, as well as ground services and maintenance, and repair and overhaul of aircraft at Prague Airport, according to the ÚOHS.  

For ČSA, the merger has thus far resulted in significant staff cuts and consolidation.

Prague Airport's incorporation into the structure approved by the Finance Ministry in September called for the airport's real estate, including buildings and the runway, to continue to be legally owned by the state. The rest of Prague Airport, including employees, information technology, accounting and taxes will be part of ČA.

Ultimately, ČA is meant to consist of seven commercially independent subsidiaries. As of Nov. 1, the head of ČA will be Miroslav Dvořák, who formerly served as both president of ČSA and director of Prague Airport.

Cat Contiguglia can be reached at
ccontiguglia@praguepost.com