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Brussels, 5th July 2005

Mergers: Commission clears planned acquisition of Swiss by Lufthansa, subject to conditions

The European Commission has cleared under the EU Merger Regulation the proposed acquisition by German airline Deutsche Lufthansa AG of the Swiss airline Swiss International Air Lines Ltd. The Commission's clearance is conditional upon the parties surrendering slots at Zurich and Frankfurt airports and other concessions. In light of these commitments, the Commission has concluded that the transaction would not significantly impede effective competition in the EEA and Switzerland.

"I welcome airline consolidation in Europe, but it should not lead to higher prices or reduced choice of carrier. The commitments given by Lufthansa ensure that competitors will be able to offer new services in competition with the merged company", Competition Commissioner Neelie Kroes said.

On 20 May 2005, Deutsche Lufthansa AG and Swiss International Air Lines Ltd. notified the Commission of an agreement whereby Lufthansa will acquire the majority of the shares in, and sole control of, Swiss. Lufthansa is the principal airline in Germany and provides air transport of persons, cargo and related services. Lufthansa is a member of the Star Alliance of airlines. Swiss, created in 2002 on the basis of the existing regional carrier Crossair, is the principle airline in Switzerland and provides air transport of persons and cargo and related services.

The Commission's investigation showed that the proposed acquisition by Lufthansa of Swiss would eliminate or significantly reduce competition on a number of intra-European routes, most importantly Zurich- Frankfurt and Zurich- Munich, and on some long-haul routes to the US, South Africa, Thailand and Egypt. In reaching this conclusion the Commission also took in to account the impact of Lufthansa's close co-operation with members of the Star Alliance.

To address the Commission’s concerns, the parties have committed themselves to surrender slots at the airports of Zurich, Frankfurt, Munich, Düsseldorf, Berlin, Vienna, Stockholm and Copenhagen. This creates the conditions for a total of up to 41 roundtrips per day by competing airlines to emerge on the affected routes.

In order to encourage market entry, a new operator may also, after a certain period, acquire so-called "grandfather rights" over the slots obtained for the Zurich-Frankfurt and Zurich-Munich routes, provided that it offers the service in this route for at least three years. This provision increases the value of the slots released and thereby significantly reduces the risk of new entry. The undertaking on slots is accompanied by measures requiring Lufthansa to refrain from increasing its planned offer of flights on the affected routes in order to give a new entrant a fair chance to establish itself as a credible competitor.

Finally, the Swiss civil aviation authority has assured the Commission that it would grant traffic rights to other carriers wishing to stop over in Zurich en route to the United States or other non-EU destinations. The Swiss and German aviation authorities have also assured they would refrain from regulating prices on long haul routes. This is important because the Commission took into account the existence of indirect, or network, competition on long-haul routes as a factor in its market analysis.

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