Nationality Requirements for EU Airlines: The Lufthansa/Swiss/Austrian Mergers as a Case Study

Abstract

The Lufthansa Group, in its acquisition strategy over the past decennium, has been building up a conglomerate of 'independent' airlines within Europe. These cross-border acquisitions have been facilitated by the applicable EU common air transport regulations and the creation of a single EU aviation market. Historically however, such international airline mergers or acquisitions have not been easy to realize, due to regulatory barriers regarding foreign ownership restrictions, in both air service agreements and national laws. This so-called nationality rule prevents airlines from merging across-borders. These regulatory barriers for cross-border mergers and acquisitions are also the main reason for the emergence of transatlantic airline alliances. Transatlantic alliances or joint ventures merely exist because airlines cannot merge cross-border. In the absence of such transatlantic regulatory barriers it would be more efficient to merge, instead of forming an alliance. Desai describes this, using a romantic metaphor: 'If an alliance is like an engagement and a merger is like a marriage, for the majority of airlines the best they can do is get engaged because marriage is not an option. This is because of the restrictions on airline ownership and control that has been in place since the Chicago Convention over 60 years ago.' This article will show that marriage for intra-EU airline partners is now an option. Even marriage between an EU and a Swiss carrier is now an option. Transnational airline mergers and acquisitions in the single EU aviation market have become easier to establish due to regulatory developments. The internal EU regulatory regime at present facilitates intra-EU airline mergers and acquisitions. This article will focus on two acquisitions as done by The Lufthansa Group in the past decennium: the takeover of Swiss International Air Lines in 2005 and the takeover of Austrian Airlines in 2009, and will analyse the aviation legal aspects surrounding both transactions, in particular focussing on the 'nationality rule' and competition law aspects.