Competition Authority Decision of 25 June 1996, relating to a proceeding under Section 4 of the Competition Act, 1991.
Notification Nos. CA/36/95 and CA/37/95 - Irish Helicopters Limited/Bristow Helicopters Limited and others.

Decision No. 469
Introduction

1.	This decision concerns arrangements for the sale and purchase of Irish Helicopters Limited (IHL) and its subsequent future operations. The arrangements involve two agreements which are both dated 28 July 1995 and which were notified to the Authority on 27 October, 1995 and 31 October, 1995 with a request for a certificate under Section 4(4) of the Competition Act, 1991 or, in the event of a refusal by the Competition Authority to grant a certificate, a licence under Section 4 (2). The Authority sought the views of the Minister for Transport, Energy and Communications under Section 4(5) of the Act.

(a)	The subject of the Notification

2.	This decision involves two related agreements.  One is an agreement for the sale of all the shares in IHL, between Aer Lingus Shannon plc and Aer Lingus plc, as vendors, Bristow Helicopters Limited (Bristow) and Petroleum Helicopters Inc. (PHI), as purchasers and IHL. The other is a shareholders agreement in relation to the management and operation of IHL between PHI and Bristow.

(b)	The parties involved     

3.	PHI is a US registered public company engaged inter alia in the helicopter business. It provides services on a world-wide basis to the oil and gas industry and has been in the helicopter services business since 1949. Its operating revenue for the 9 months ended January 1995 was $130m. Bristow is a subsidiary of Bristow Helicopter Group Limited, a private company based in the UK which had a turnover of £174m in 1993. Bristow has been engaged in the business of providing helicopter services since 1955. The Group provides a full range of helicopter and associated services to businesses engaged in the oil and gas industry on a world-wide basis. PHI had no operations within the State prior to the notified arrangements. Bristow operated into Cork airport for a few years but these operations ceased in 1973. Aer Lingus is a State owned company engaged in the provision of commercial air services between Ireland and a variety of overseas destinations. Aer Lingus plc and Aer Lingus Shannon are fellow subsidiaries of  Aer Lingus Group plc. IHL, which was a wholly owned subsidiary of the Aer Lingus Group, is engaged in the provision of helicopter services within the State and offshore. At the date of the agreement IHL had an issued share capital of £250,000 in £1 shares which were held as follows:

Aer Lingus Shannon plc           127,500   A shares
Aer Lingus plc                          122,500   B shares.

(c)	The product and the market

4.	The products involved are the provision of helicopter services throughout the State and offshore which is the main business of IHL. The service involves the transport of personnel and equipment by helicopter throughout the State and to offshore installations such as oil and gas platforms. IHL services lighthouses around the coast and offshore for the Commissioners of Irish Lights. It also provides air based search and rescue services on a contract basis for the State. Customers may hire helicopters for specific trips or may retain them to provide regular services. There are a number of other companies which provide such services within the State. In addition users could decide to use other EU based suppliers. In some instances services could be provided by fixed wing aircraft. The latter require an airstrip for take-off and landing and so they do not provide the same flexibility of service. In the case of certain services, e.g. to offshore oil and gas platforms, fixed wing aircraft do not represent an option. On balance the Authority considers that the market is largely confined to helicopters and that fixed wing aircraft are not a sufficiently close substitute to be considered part of the same market. There are certain legal restrictions which apply to helicopter services and aviation services generally, which, to some extent constitute a barrier to entry. In particular, Council Regulation No. 2407/92 prevents non-EU based firms from holding a controlling interest in firms supplying aviation services within the EU. 

(d) The Arrangements

(i) The Sale and Purchase Agreement.

5.	The agreement provides for the purchase by Bristow of 127,500 ‘A’ shares in IHL, representing 51% of IHL’s issued share capital, from Aer Lingus Shannon and for the purchase by PHI of 122,500 ‘B’ shares in IHL, representing 49% of IHL’s issued share capital, from Aer Lingus. Under clause 10.2 PHI irrevocably appoints Bristow to act as its agent for the purposes of the agreement. The agreement contains no non-compete provisions.

(ii) The Shareholders Agreement.

6.	The shareholders agreement was made to provide for the execution of the share purchase agreement and to regulate matters relating to the continued ownership and operation of IHL’s transportation business. It provides that Bristow will own 51% of its issued share capital and PHI will own the other 49%. Clause 2.2 provides that Bristow and PHI may each appoint two directors of IHL.  Clause 2.4(ii) provides that neither Bristow nor PHI, unless unanimously agreed by the parties, will compete with IHL from a base within Ireland for operations within Ireland, nor provide any assistance to any third party requiring operations in Ireland, other than through IHL or have an equity interest in a competing entity. During the course of the agreement and for a period of one year after termination neither party may solicit or employ any person who was employed by the other and was involved in the activities of IHL or any of its subsidiaries. Clause 3.3 includes a number of standard provisions which are designed to protect PHI’s interests as a minority shareholder.

(e)  Submissions by the Parties.

7.	The parties argued that the agreements did not prevent, restrict or distort competition in Ireland or any part of Ireland. An existing operation (IHL) was acquired by two companies which did not operate in the market so that there was no distortion of competition as a result of the acquisition. The shareholders agreement did not distort competition since one of the parties, PHI, could not have operated in the State on its own in any case. It was claimed that none of the non-compete provisions distorted competition in a manner which would justify refusal of a certificate. It was also argued that other operators could enter the market. The parties also submitted arguments in support of their request for a licence but these are not considered here.

Assessment

(a) Section 4(1)

8.	Section 4(1) of the Competition Act states that `all agreements between undertakings, decisions by associations of undertakings and concerted practices which have as their object or effect the prevention, restriction or distortion of competition in trade in any goods or services in the State or in any part of the State are prohibited and void.'

(b) The Undertakings and the Agreement

9.	Section 3(1) of the Competition Act defines an undertaking as `a person being an individual, a body corporate or an unincorporated body of persons engaged for gain in the production, supply or distribution of goods or the provision of a service.'  Bristow and PHI are engaged for gain in the provision of helicopter services. Aer Lingus and Aer Lingus (Shannon) are engaged for gain inter alia in the provision of airline services. All of them are corporate bodies and are therefore undertakings within the meaning of the Act.  The notified agreements constitute an agreement between undertakings.

(c) Applicability of Section 4(1)

(i) The Share Purchase Agreement.

10.	The notified arrangements provide for the acquisition of the entire issued share capital of IHL by Bristow and PHI. Neither of these currently operates within the State and so the arrangements have no effect on the actual level of competition in the relevant market. PHI is restricted from operating within the EU on its own by virtue of EC Council Regulation No. 2407/92 (OJ L240/1, 24/8/92), and so the question of its being a potential competitor does not arise. Bristow is a potential competitor. In the Authority’s opinion, however, there are a large number of other potential competitors located in other EU member states who could provide such services in Ireland and, who could, if they so wished, establish operations in Ireland. In the circumstances the Authority does not believe that the share purchase agreement will have any adverse effect on competition within the State and so it does not believe that the agreement offends against Section 4(1).

(ii) The Shareholders Agreement.

11.	The arrangements also provide for the ongoing operations of IHL as a jointly owned operation between Bristow and PHI. The situation is unusual because of the prohibition in EC Council Regulation No. 2407/92 which effectively prevents PHI holding a controlling interest in any company engaged in providing airline services, including helicopter services, in any EU member state. Thus effectively PHI could not enter the market other than as a minority partner in a joint enterprise. In these circumstances the agreement of itself does not offend against Section 4(1).

12.	The restrictions on the parties competing with IHL for the duration of the agreement do not offend against Section 4(1). The Authority has stated previously that, where parties engage in business together as shareholders, it is an essential feature of the arrangement that they do not compete with the business which is jointly owned. The purpose of such an arrangement is not to restrict competition but merely to ensure the development of the business in which the parties are shareholders.

13.	The agreement also prevents Bristow and PHI from soliciting or employing staff of the other  who had been involved in any way with IHL for the duration of the agreement and for up to one year after termination. The Authority has previously accepted such restrictions in shareholding agreements. Again this is to ensure the successful operation of the joint enterprise, which would be undermined if one party were to employ staff of the other, rather than to restrict competition. In addition the agreement includes a number of restrictions on the activities of IHL. These are designed to protect the minority interest of PHI and the Authority has previously recognised that such provisions are not anti-competitive. In the Authority’s opinion none of the provisions in the shareholder agreement offend against Section 4(1).

The Decision

14.	In the Authority's opinion Bristow, PHI, Aer Lingus and Aer Lingus (Shannon) are undertakings within the meaning of Section 3(1) of the Competition Act, and the notified arrangements constitute an agreement between undertakings. In the Authority's opinion the share purchase and shareholder agreements dated 28 July, 1995 do not offend against Section 4(1) of the Competition Act.

The Certificate

15.	The Competition Authority has issued the following certificate:

The Competition Authority certifies that, in its opinion, the agreement dated 28 July 1995, for the acquisition of shares in Irish Helicopters Limited between Aer Lingus Shannon plc, Aer Lingus plc, Bristow Helicopters Limited, Petroleum Helicopters Inc. and Irish Helicopters Limited, (Notification no. CA/36/95), notified under Section 7 on 27 October 1995 and the shareholders agreement also dated 28 July 1995, in relation to the management and operation of Irish Helicopters Limited between Bristow Helicopters Limited and Petroleum Helicopters Inc. (Notification no. CA/37/95),  notified on 31 October 1995 under Section 7, do not offend against Section 4(1) of the Competition Act.

For the Competition Authority

Patrick Massey
Member
      25 June 1996.