COMPETITION AUTHORITY

Competition Authority Decision of 29 February 2000 relating to a proceeding under Section 4 of the Competition Act, 1991.

Notification No CA/17/99: Connaught Airport Development Company Limited and Knock Cargo Handling Limited

Decision No. 583

Price 	£0.60
	£1.00

Competition Authority Decision of 29 February 2000 relating to a proceeding under Section 4 of the Competition Act, 1991.

Notification No. CA/17/99: Connaught Airport Development Company Limited and Knock Cargo Handling Limited.

Decision No: 583

1. Introduction

1.	Notification was made on 23 December 1999 with a request for a certificate under Section 4(4) of the Competition Act, 1991, as amended or, in the event of a decision by the Authority to refuse a certificate, a licence under Section 4(2) in respect of an agreement for services related to cargo handling at Knock airport.

2. The Facts

(a) Subject of the Notification

2.	The notification concerns a services agreement whereby Connaught Airport Development Company Limited grants Knock Cargo Handling Limited the exclusive right to provide cargo handling, freight forwarding and freight management services, establish and operate a customs warehouse, ground handling solely to facilitate the provision of these services, back-office and data support services and all other services ancillary to or necessary for the provision of the aforementioned services at Knock International Airport.

(b) The parties involved

3.	Connaught Airport Development Company Limited (CADCO), of Breaffy Road, Castlebar, Co. Mayo, is the owner and manager of Knock International Airport.  CADCO’s turnover during the financial year ended 30 June 1999 was IR£2.8m.  CADCO was incorporated to build, develop, maintain and administer the airport and it operates the airport in trust.  The Directors’ Report and Shareholders’ Accounts for the year ended 30 June 1998 stated that  “The interest of the directors in the ordinary shares of the company were as follows :
		
					30.6.98		30.6.97

John Dillon				nil			nil
Cathal Duffy				nil			nil
Mons. Dominick Greally		1			1
John Mahon				nil			nil
Des Mahon				nil			nil
Nancy Horan				nil			nil

As at 30 June 1998, the Horan International Airport Trust holds 9 issued ordinary IR£1 shares.  Mons. Dominick Greally holds 1 share in trust for the Horan International Airport Trust”.
4. 	Knock Cargo Handling Limited (KCH) is registered at Connellan and Company, Station Road, Ennis, Co. Clare.  Its business is described as cargo handling, warehousing and freight forwarding.  The Annual Return to the Companies Registration Office shows that the issued share capital of the company is £100.  The Directors are:

Martina King			 
Aengus King				10 ordinary shares
Anthony Pidgeon
Charlie Mulligan
Crisham Industrial Properties		50 ordinary shares
Interpalace Investments Ltd		40 ordinary shares.

Since KCH is a start-up company, there are no accounts available yet.

(c) The product and the market

5.	The agreement relates to the provision of cargo handling, freight forwarding and freight management services, and other ancillary services (collectively, “the Services”), at Knock airport.  These activities are not currently provided at Knock.  They are provided at Dublin, Cork, Belfast and Shannon airports but not at the other regional airports (Waterford, Kerry, Galway, Sligo and Donegal).  The parties have provided information on the Services and on companies which provide them at the four main airports.  At Dublin Airport there are two cargo terminals - Servisair and Aer Lingus - out of which twenty freight companies operate.  At Cork there are two freight companies; at Belfast there are three handling agents (Aer Lingus, Servisair and BA World Cargo) and 20 freight forwarders.  At Shannon there are again two cargo terminals (Aer Lingus and Servisair) out of which 13 service freight companies operate.  Total cargo throughput at the three airports in the State for 1998 was 191,505 tonnes, an increase of 12.5% over 1997.  Dublin airport achieved growth of 9.8% to record an airlift of 134,650 tonnes.  Shannon achieved growth of 11.5% at 44,037 tonnes. Cork airport also enjoyed considerable growth up to 12,818 tonnes, an increase of 58.3%.  The notifying party believes that there are approximately 45 freight forwarders at the four main airports in the island of Ireland. 

6.	“Freight forwarding” in the context of the agreement refers to freight movement on and off the aeroplane apron.  The agreement does not give KCH an exclusive right in respect of actual freight forwarding, i.e. moving cargo to and from the end customer, since this activity will be provided by a range of operators currently in the market.  Customers for the services covered by the agreement would include companies which wish to avail of cargo services as well as freight forwarding services in the region, as well as any international cargo/freight forwarding companies wishing to service the airport and the surrounding region.  KCH intends to invest approximately £1.25 million in connection with the provision of the services.

7.	The Authority considers that the relevant product market is that for the provision of support services for freight handling.  Neither of the parties to the agreement currently has any presence in this market, as the airport does not currently engage in cargo handling.  Since it appears that Belfast airport may provide some competition to those airports within the State which provide the services (i.e. Dublin, Cork and Shannon), the Authority considers that the geographic market is no narrower than the State.

(d) The notified arrangements

8.	Under Clause 2.1 of the agreement, CADCO grants to KCH the exclusive right during the term of the Agreement to carry on the Business at the airport.  The “Business” is defined as “the provision of cargo handling, freight forwarding and freight management services, the establishment and operation of a customs warehouse, Ground Handling solely to facilitate the provision of the aforementioned services, the provision of back-office and data-base support services and all other services ancillary to or necessary for the provision of the aforementioned services.” Notwithstanding this exclusivity, CADCO is entitled to permit one operation which is in receipt of grant assistance from the Industrial Development Authority, Enterprise Ireland or any similar State entity to establish within the Airport zone and carry on self-handling (as defined in Council Directive 96/67/EC of 15 October 1996 on access to the ground handling markets at European Community Airports) provided that such operation is not providing a cargo handling service to third parties and is not carrying on business in competition to KCH (Clause 2.2).  The agreement is subject to the provisions of the EC Directive cited above and to the Ground Handling Regulations (S.I. No. 505 of 1998) and CADCO is entitled to amend and/or terminate it at its discretion in order to conform with these provisions.

9.	The initial term of the agreement is for ten years.  It may be terminated forthwith by written notice in the event of breach by either party or if either party goes into liquidation, examinership, receivership etc. or ceases to carry on business.  After the ten years are up, the rights granted to KCH cease to be exclusive and the restrictive covenants in Clause 35 (see below) no longer apply.  Clause 15.3 of the agreement provides for notification of the agreement to the Competition Authority seeking a certificate or licence.  Under Clause 35, CADCO undertakes not to, and not to allow any third party to, compete with the business, solicit customers or solicit directors or employees of KCH, for the duration of the Agreement. 

(e) Submissions of the parties

10.	The parties submitted that the Agreement would not prevent, restrict or distort competition, since the parties were not competitors.  In fact, it would  facilitate the development of competition by providing an alternative route for air freight in the west of Ireland.  This would be in direct competition with other airports.  The parties further submitted that, notwithstanding the exclusive nature of the arrangement, there would be no restriction or distortion of competition, since the airport did not have either the space capacity or the traffic density to support an additional provider of these services at present, and since there was sufficient competition available from other airports.  They pointed out that the arrangement would allow for the creation and maintenance of new competitors in the geographic market, and claimed that the agreement merited a certificate since it did not have any appreciable effect on trade in the State.

11.	The parties also made submissions in support of their request for a licence.  As these are not considered relevant to the decision, they are not reproduced here.

(f) Council Directive 96/67/EC of 15 October 1996 on access to the ground handling markets at European Community Airports

12.	Directive 96/67/EC (as implemented by S.I. No. 505 of 1998) aims to open up the market for ground handling services in Europe to competition.  On the basis of Article 1(c) and Article 6 of the Directive, a supplier of ground handling services may be granted an exclusive right to provide the services at an airport until such time as the airport exceeds the thresholds set out in Article 1(c).  The current  thresholds are:

- not less than 3 million passenger movements  or 75,000 tonnes of freight; or

- not less than two million passenger movements or 50,000 tonnes of freight during the six month period prior to 1 April or 1 October of the preceding year.

Article I, paragraph 2 provides that from 1 January, 2001 the threshold shall be 
	- not less than two million passenger movements or 50,000 tonnes of freight.

13.	As soon as these thresholds are exceeded, the provisions of Article 6, which are intended to promote free access to the ground handling market at airports, come into effect. The airport is then under an obligation to ensure that there are no fewer than two service providers for each category of ground handling service.  So, in this case, once the thresholds are reached, KCH will no longer have the exclusive right to supply the services.  The Directive recognises that in certain circumstances, due to constraints of space or capacity, a single supplier of services would be more appropriate.  It provides that, if the number of ground handling services is limited, effective competition will require that at least one of the suppliers should be independent of both the managing body of the airport and the dominant carrier.

3. Assessment

(a) Section 4(1)

14.	Section 4(1) of the Competition Act, 1991, as amended, 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 goods or services in the State or in any part of the State are prohibited and void.’

(b) The Undertakings and the Agreement

15.	“Section 3(1) of the Competition Act defines an undertaking as ‘a person, being an individual, a body corporate or an unincorporated body engaged for gain in the production, supply or distribution of goods or the provision of a service. ” CADCO is engaged for gain in the business of building, developing, maintaining and administering the airport and is an undertaking.  KCH is engaged for gain in the business of cargo handling, warehousing and freight forwarding and is an undertaking.  The agreement is an agreement between undertakings and has effect within the State.

(c) Applicability of Section 4(1).

16.	Under the agreement, CADCO grants to KCH the exclusive right during the term of the Agreement to carry on the Business at the airport.  Notwithstanding this exclusivity, CADCO is entitled to permit one operation which is in receipt of grant assistance from the Industrial Development Authority, Enterprise Ireland or any similar State entity to establish within the Airport zone and carry on self-handling, provided that such operation is not providing a cargo handling service to third parties and is not carrying on business in competition to CADCO (Clause 2.2).  The agreement is subject to the provisions of Council Directive 96/67/EC of 15 October 1996 on access to the ground handling markets at European Community Airports and may be amended or terminated if the limits set out in that Directive are breached.  The Authority considers that an agreement does not necessarily breach Section 4(1) by virtue of being an exclusive arrangement.  In this case, the arrangements will facilitate the entry into the market of a new competitor, since Knock Airport was not previously involved in cargo handling.  The Authority considers that the exclusivity provisions do not have the object or effect of preventing, restricting or distorting competition but merely reflect the fact that KCH, as a start-up company, has committed a considerable amount of investment to the project.

17.	Under Clause 35, CADCO undertakes not to, and not to allow any third party to, compete with the business, solicit customers or solicit directors or employees of KCH, for the duration of the Agreement.  The Authority considers that a provision preventing the parties to an agreement from competing with the business which is the subject of the agreement, for as long as the agreement lasts, is not anti-competitive and does not contravene Section 4(1).  The Authority therefore considers that the arrangements as a whole do not have as their object or effect the prevention, restriction or distortion of competition in trade in goods or services in the State or in any part of the State.

(d) The Decision

18	In the Authority’s opinion, Connaught Airport Development Company Limited and Knock Cargo Handling Limited are undertakings within the meaning of Section 3(1) of the Competition Act, 1991, as amended, and the notified agreement is an agreement between undertakings.  In the Authority’s opinion, the notified agreement does not have the object or effect of preventing, restricting or distorting competition and thus does not contravene Section 4(1) of the Competition Act.

The Certificate

The Competition Authority has issued the following certificate:

The Competition Authority certifies that, in its opinion, on the basis of the facts in its possession, the agreement for services related to cargo handling at Knock airport dated 6 July 1999 between Connaught Airport Development Company Limited and Knock Cargo Handling Limited, notified under Section 7 of the Competition Act on 23 December 1999 (notification no. CA/17/99) does not contravene Section 4(1) of the Competition Act, 1991, as amended.

For the Competition Authority,

Isolde Goggin,
Member,
29 February 2000.