Irish Competition Authority Decisions

1. Arrangements whereby General Electric Capital Corporation (GE Capital) would, in effect, acquire control over GPA's competitive presence in the market for the provision of aircraft were notified to the Competition Authority on 30th August, 1993. The notification requested a certificate, or in the event of a refusal by the Competition Authority to issue a certificate, a licence.

2. Notice of intention to grant a certificate in respect of these notifications was published in the Irish Times on 8 October 1993. No submissions were received from third parties.

3. The notification concerns a series of related agreements which, together, result in GE Capital acquiring effective control over the competitive presence of GPA in the aircraft provision market. In all, 14 agreements were notified to the Authority, and they are listed below:-

1. The Omnibus Agreement.

2. The Master Aircraft Sale Agreement and the Master Deferred Payment Agreement.

3. The Subscription Option Agreement.

4. The Management Agreement.

5. The Air Tara Option Agreement.

6. The Asset Purchase Agreement.

7. The Treasury MIS Licence Agreement [1].

8. The Licence Agreement.

9. The Shareholders' Agreement.

10. The Sublease.

11. The Interested Party Agreement.

12. The GPA Management Asset Consent and Boeing Consents.

13. The Deferral Agreements [2].

14. The Loan Stock Trust Deed [3].

The Omnibus Agreement is the framework agreement for all of the other agreements. In addition to the Omnibus Agreement the other important agreements are; The Master Aircraft Sale Agreement [4], The Subscription Option Agreement and the Management Agreement. These Agreements contain provisions whereby:-

(a) GE Capital will acquire aircraft and assets from GPA, and

(b) Will receive an option to purchase (within 5 years) between 65% and 80% of GPA's voting equity and

(c) Contractual arrangements whereby General Electric Capital Aviation Management will acquire (for 15 years) exclusive management of GPA's aircraft and related assets.

The arrangements were the subject of two notifications to the Minister for Enterprise and Employment under the Mergers Act. The Minister decided not to make an Order under section 9 of that Act in both cases.

4. GE Capital, a US company based in Connecticut is the financial services subsidiary of the General Electric Group whose ultimate parent company is General Electric Company (GE Company). GE Company owns all the outstanding common stock of GE Capital Services which is the sole owner of the common stock of GE Capital. GE Company is one of the largest and most diversified industrial corporations in the world.

5. GE Capital is involved primarily in asset management

and financial services and, on a smaller scale, in the insurance industry. Its financing activities include a full range of leasing, loan and asset management services. Two components of GE Capital, namely; Polaris Holding Company (Polaris) and Transportation and Industrial Funding Corporation (T&I) are responsible for GE Capital's aircraft leasing business.

6. GPA Group PLC (GPA), a Shannon based Company, was established in 1975, and is the parent company of the GPA group. Initially GPA concentrated on brokering aircraft and later became involved in the business of purchasing commercial aircraft and leasing them to airlines throughout the world. It also sells aircraft as operating assets and, since the mid-1980s has sold aircraft with operating leases in place to investors. GPA also provides extensive management and technical support services to airlines and investors. In the course of its business GPA has acquired control of a significant number of special purpose entities which are used in the implementation and completion of transactions in which it is involved. Air Tara Limited, an Irish company which is a wholly owned subsidiary of GPA, provides technical support to GPA and is used for aircraft registration purposes.

7. The notification concerns the market for providing commercial jet aircraft to air carriers. There are essentially three main options open to air carriers in order to acquire additional aircraft.

(a) To purchase new aircraft from airframe manufacturers or from intermediaries e.g. lessors of aircraft.

(b) To purchase used aircraft from airframe manufacturers, an airline, bank or other financial institution or from an intermediary (for example a broker or a lessor).

(c) To lease aircraft from an airline manufacturer, an airline, a bank or other financial institution or from a leasing company.

There are two principal types of aircraft leases; operating leases and finance leases.

8. As a general matter, in an operating lease the risks and rewards of ownership remain with the lessor. Where finance or capital leases are concerned the risks and rewards of ownership generally remain with the lessee. Finance leases are usually for longer periods with the lessee often obtaining the right to acquire the aircraft at the end of the lease period.

9. Air carriers do not just choose one method of acquiring aircraft but use a combination of these methods in order to provide themselves with aircraft. These options have relative degrees of attractiveness for an air carrier and each is price/rate sensitive to the other because they each represent alternative economic choices as to how to obtain aircraft.

10. Aircraft leases can take many forms. Each of these is price/rate sensitive to the other because they each represent alternative economic choices available to finance the acquisition of aircraft. Depending on its evaluation of particular needs (in terms of customer and route demand) an air carrier will compare and choose the type of lease which would optimise the benefits involved. In addition the lease may be able to be structured to provide the lessor with tax and/or accounting advantages, which may reduce the cost of the lease.

11. GPA and GE Capital have over 200 competitors worldwide in the aircraft provisioning market. These competitors assist air carriers in obtaining aircraft whether by sales, financing assistance, leasing or a combination of these methods.

Competitors include:

- Airframe Manufacturers

- banks and credit institutions

- financial institutions

- air carriers

- governments

- aircraft investment groups

- industrial companies etc

- pension funds, and

- leasing companies.

12. The provision of aircraft is a global market. Essentially a lessor competes for business worldwide. Although a lessor may be located in Ireland (as in the case of GPA) they compete for business both in Ireland and elsewhere in the world. Similarly, all 200 competitors are potentially in a position to offer services to Irish-based air carriers.

13. The operators of commercial jet aircraft are air carriers located throughout the world. Operators are generally well informed with regard to market trends. Because of the large capital commitments involved in acquiring aircraft, the market provides substantial information to customers in relation to the supply available. This is done mainly through brokers who ensure that potential customers are well informed of pricing levels and competitive terms within the market. Thus aircraft providers are in a position to have their aircraft marketed throughout the world. This leads to a high degree of transparency in the market. The market for commercial jet aircraft is, in many respects, a global one. From the point of view of the Competition Act, however, the issue is what effect the arrangements might have on Irish operators of such aircraft. The main Irish customers for commercial jet aircraft include, Aer Lingus, Air Turas, Ryanair and Translift airlines.

14. GE Capital acquires aircraft primarily by purchasing new and used aircraft from air carriers or pursuant to existing carriers' order positions, and leases them back to air carriers. In addition GE Capital provides secured financing involving leases structured in various forms, but mostly on a long term basis. GPA primarily buys new aircraft from airframe manufacturers on a speculative basis and leases them out to air carriers usually on a short term basis.

15. The notifying parties submit that no definite industry data exists for the calculation of exact market shares. Best estimates indicate that GPA has a share of 3.9% of the relevant aircraft provision market worldwide with a 3.5% share in the EC. In so far as Ireland is concerned, the parties stated that GPA has, at most, 23.8% of operating leases, 20.83% of all types of leases and 8.33% of the relevant aircraft provisioning market. GE Capital has a share of 4.3% of the relevant market worldwide with a 1.2% share in the EC. It has no involvement in Ireland.

16. The table below illustrates how the commercial jet aircraft provisioning market in Ireland is currently structured.

Owned aircraft 2 Nil 34 36

Finance Lease Nil Nil 3 3

Operating Lease 5 Nil 16 21

Total 7 Nil 53 60

17. Demand for aircraft worldwide, and hence aircraft financing and leasing is influenced by a number of factors including; economic conditions, political developments, internal corporate requirements, and regulatory changes (such as tax laws or noise level rules).

18. The only significant barrier to entry into the aircraft provisioning market is capital availability. This applies equally to the Irish market where there are no significant regulatory controls or authorisation requirements. Entry occurs both in expanding and declining markets. During the 1980's the market became more profitable resulting in increased entry by banks, corporation lessors of other equipment (for example ORIX expanded from shipping leasing to aircraft leasing), utility companies etc. When the air transport market declines, as in recent years, air carriers lease surplus aircraft offering additional services such as fleet planning, maintenance programs, wet leases (leasing aircraft together with crew and other support services) and other product support.

(d) The Arrangements

19. The notified arrangements contain a number of agreements between the parties which, primarily, provide for the following:

(i) the appointment of GECAS (a wholly owned subsidiary of GE Capital established for the purpose of managing GPA's aircraft assets), as exclusive manager of GPA's business for a period of fifteen years;

(ii) an option from GPA to allow GE Capital to acquire between 65% and 80% of the share capital voting rights of GPA; and

(iii) an option from GPA to allow GE Capital purchase up to 100% of the issued share capital of Air Tara Limited, a wholly-owned subsidiary of GPA.

The Omnibus Agreement (CA/44/93)

20. The parties to this agreement are GECAS Limited, GE Capital and GPA. This is effectively, the framework agreement for all the other agreements. It explains the basis upon which both parties enter the agreement, addresses employee-related matters and covers the technical and procedural aspects of the transaction.

21. Section 8.03 prevents GPA from seeking or soliciting alternative offers prior to closing. Section 9.02 provides for the survival of many of the terms of the agreement in some instances for up to 3 years after the management agreement ceases.

22. The parties to this agreement are GE Capital and GPA Group plc. Under the terms of this agreement, GE Capital is granted an option to subscribe for a new class of shares in GPA constituting between 65% and 80% of GPA's voting equity. This option is exercisable up to 31 March 1998.

23. Section 7.l0 deals with the provision of information by GPA and GE including access to its contracts:

'(a) GPA will cause the GPA Subsidiaries and each of the GPA Managed Affiliates to, and will use commercially reasonable efforts to cause the other Affiliates of GPA to, maintain all their financial records and books of account in accordance with Irish GAAP (or with generally accepted accounting principles of the appropriate jurisdiction) applied on a consistent basis and to provide GE Capital and its Representative with such information with respect to its business, assets, properties, condition (financial or otherwise) and prospects as GE Capital and its Representatives shall reasonably request.

(b) Upon effectiveness of a Preliminary Exercise Notice, GPA will cause each of the GPA Subsidiaries and each of the GPA Managed Affiliates to, and will use commercially reasonable efforts to cause the other Affiliates of GPA to, make available for inspection by GE Capital and GE Capital's Representatives all GPA, the GPA Subsidiaries, the GPA Managed Affiliates and such other Affiliates' properties, assets, books of accounts, corporate records and contracts and materials reasonably requested by GE Capital or such Representative at such reasonable times as GE Capital or such Representative may reasonably request and to make reasonably available to GE Capital and its Representatives the directors, officers, employees and independent accountants of GPA, each of the GPA Subsidiaries, each of the GPA Managed Affiliates and each such other Affiliate for interviews to verify the information furnished to GE Capital and its Representatives, to such reasonable extent and at such reasonable times as GE Capital and its Representatives may reasonably request. Further, GPA will, cause each of the GPA Subsidiaries and each of the GPA Managed Affiliates to and will use commercially reasonable efforts to cause each other Affiliate of GPA to, assist GE Capital and its Representatives in becoming familiar with GPA, each of the GPA Subsidiaries, each of the GPA Managed Affiliates and each such other Affiliate and its then existing and prospective business, properties and assets, including to the extent reasonably practicable, by providing access to GPA, each of the GPA Subsidiaries, each of the GPA Managed Affiliates and each such other Affiliates' customers, lessees, lenders and vendors, at such reasonable times as GE Capital and its Representatives may reasonably request.'

24. Article VIII Section 8.01 contains a number of restrictions on what GPA and its subsidiaries can and cannot do, e.g. GPA and its subsidiaries cannot merge or consolidate with or enter a business combination with any other person, cannot sell, lease or transfer all or a substantial part of its properties or assets, and cannot purchase, lease or otherwise acquire all or any substantial part of the properties or assets of any other person.

25. The parties to this agreement are GECAS Limited and GPA Group plc. Under the terms of the Management Agreement, GECAS is appointed as exclusive provider of management services to GPA its subsidiaries and its associated companies for a period of fifteen years. It, in effect, acquires control over the competitive presence of GPA for this period. However, the approval of the Board of Directors of GPA is still required before further capital expenditure is incurred. The agreement also provides for extensions to the fifteen year period if agreed by both parties.

26. Pursuant to the Management Agreement GPA appoints GECAS as the exclusive provider of the Management Services (as defined) to GPA in relation to most of the aircraft assets owned by GPA, its subsidiaries, a number of its associated companies or certain third parties which are covered by the Management Agreement (GPA Managed Assets). The management arrangement is for an initial term of 15 years, subject to certain limited rights of termination of each party. In certain circumstances, the arrangements can be automatically extended beyond the 15-year term for rolling two-year periods, subject to the right of either party to terminate by written notice. Pursuant to the Transaction and by virtue of its rights and obligations under the Management Agreement, GECAS will have acquired, in effect, GPA's competitive presence in the market for the financing and leasing of commercial aircraft.

27. The Management Agreement expressly contemplates that GECAS will have the necessary autonomy, authority and responsibility for performance of the Management Services. The Board of Directors of GPA, however, retains certain residual authority to direct GECAS to take or cease to take any action with respect to the GPA Managed Assets to the extent necessary to comply with its fiduciary obligations under Irish law and to approve sales or lease transactions which exceed certain thresholds. GPA Board approval is also required before the Management Company makes certain capital expenditures or incurs other liabilities, including the purchase of new aircraft, on behalf of GPA. The Management Agreement also provides for an annual lease operating budget and an annual expense budget to be established by GPA with respect to the GPA Managed Assets.

28. GPA's residual involvement is necessary for the following reasons:

- GPA must satisfy fiduciary obligations to its shareholders and creditors;

- GPA has retained responsibility for managing matters related to its substantial liabilities and, accordingly remains vitally interested in the generation of adequate cash flow to meet all its obligations as they become due; and

- GPA must seek to maximise the overall value of the GPA Managed Assets that will continue to be owned by GPA.

29. Pursuant to the Management Agreement, GECAS will perform the Management Services in a manner which is consistent with GPA's objectives outlined above.

30. Because of the extent of GPA's current financial liabilities, GECAS is unwilling to assume responsibility for GPA's liabilities either by outright acquisition of GPA, by indirect control of GPA through GPA's Board of Directors or in any other way. GECAS' management of GPA's leasing business does not render GECAS responsible for the liabilities of GPA [5]. This approach will facilitate the enhancement of the value of GPA through effective management by GECAS of the GPA Managed Assets while preserving the possibility of the future acquisition by GE Capital of between 65% and 80% of GPA's voting equity pursuant to subsequent exercise of the Option.

31. In order to secure the payment of Management Fees and Reimbursable Expenses (as defined) owing to GE Capital, GPA will deliver a security deposit of US$9 million to GECAS (principally in respect of Management fees and Reimbursable Expenses relating to GPA Managed Assets that are not security for GPA's principal secured bank facilities). GPA has arranged with the secured banks to give certain priority rights in cash deposits in certain GPA Bermuda collection accounts established for and otherwise securing GPA's principal secured bank facilities. (These priority rights are in respect of Management Fees and Reimbursable Expenses relating to the GPA Managed Assets that are security for GPA's Principal secured bank facilities).

32. Section 2.02 provides inter alia that:

"If following the date of this Agreement, GPA enters into any agreement (other than the proposed agreements listed on Schedule 2.02(b)) or otherwise arranges or agrees to provide management services in respect of any Aircraft Assets, Management Company shall provide such management services only (1) in accordance with this Section 2.02(b), (2) if Management Company shall have expressly consented to such agreement or arrangement and the delegation by GPA to Management Company of the authority, responsibility, duties and obligations of GPA to provide such management services, (3) if any required GPA Managed Assets Consent in respect of any such Aircraft Assets shall have been executed and delivered by the applicable GPA Managed Affiliate or Non-GPA Owner, as the case may be, and (4) for so long as such GPA Managed Assets Consent shall remain in full force and effect."

33. Section 2.02 also enables GPA to continue managing assets currently managed for third parties if they do not consent to the transfer of such functions to GECAS.

34. Section 6.08(b) prevents GPA buying or acquiring any interest in aircraft on its own account while the Agreement is in force.

35. Section 7.07 provides that GPA retains control of decisions in relation to a group of leases called the America West leases so that GECAS cannot reduce the rent or take other minor decisions without approval viz:

'Notwithstanding anything to the contrary in this Agreement or Schedule 2.02(a), Management Company shall not, without the prior written consent of GPA, (i) amend or grant a waiver with respect to, or declare any Event of Default (as defined in the DIP Credit Agreement) under any of the America West GPA Agreements, (ii) change the term of or terminate any of the America West GPA Agreements or (iii) reduce any rent payable under any of the America West GPA Agreements.'

36. Under Section 7.1, GECAS will provide GPA with information on the market, customers and financing. Such information would not be provided once a Notice of Termination had been served. Section 7.04 requires GECAS to obtain the approval of GPA for certain actions.

37. The parties to this agreement are GE Capital Corporation and GPA Group plc. The agreement gives GE an irrevocable option to acquire up to 100% of the outstanding share capital of Air Tara, a wholly-owned subsidiary of GPA.

38. Section 8.09 deals with the provisions of information similar to Section 7.l0 in the Subscription Option Agreement.

39. Section 9.01 contains similar provisions to those contained in Section 8.01 of the Subscription Option Agreement. These provide that GPA will ensure that Air Tara or its subsidiaries will not merge, consolidate or enter a business combination with any other person, that it will not sell, lease or transfer all or a substantial part of its properties or assets, and cannot purchase, lease or otherwise acquire all or any substantial part of the properties or assets of any other person.

40. In addition, under section 9.03, Air Tara and its Subsidiaries will not amend, waive or modify any provision of any Operative Agreements or any other Contract, agreement, arrangement, instrument or understanding in any respect or in any manner that would have a Material Adverse Effect on Air Tara and its Subsidiaries, taken as a whole, or which would violate or be in conflict with or restrict GPA's (Air Tara's or any of its Subsidiaries') performance of, its obligations under this Agreement, including pursuant to Section 8.11.

41. Under Section 9.04 Air Tara and each of its subsidiaries will not permit any amendment or modification to be made to the Memorandum and Articles of Association of Air Tara or by-laws of Air Tara and each of its Subsidiaries or change the corporate structure or organisation of Air Tara and each of its Subsidiaries from that set forth on Schedule 9.06 hereof.

42. Section 9.05 provides that GPA will cause Air Tara and each of its Subsidiaries not to engage at any time in any business or business activity other than the business currently conducted by it and business activities reasonably incidental thereto, to fail to maintain and operate such business (a) in substantially the manner in which it is presently conducted and operated (other than as contemplated herein) and (b) in a manner necessary, proper, advisable or desirable to keep Air Tara and its Subsidiaries in good standing, and to maintain its existing favourable relationships and reputation, with the Irish Department of Finance, Department of Enterprise and Employment or other relevant Governmental Authority and the Shannon Free Airport Development Company and any other relevant Governmental Authority.

43. Section 9.06 provides that GPA will not, and will cause Air Tara and each of its Subsidiaries not to, enter into any indenture, agreement, instrument or other arrangement which, directly or indirectly, prohibits or restrains, or has the effect of prohibiting or restraining, or imposes materially adverse conditions upon, the granting or exercise of the Air Tara Option, or the benefits and rights accruing to an owner of the Air Tara Shares.

44. Under Section 9.07,

(a) GPA shall not, directly or indirectly, offer, sell, transfer, assign, pledge, convey, hypothecate or otherwise encumber or dispose of all or any part of the Air Tara Shares or permit all or any part thereof to become subject to any Lien.

(b) GPA shall cause Air Tara not to issue any new Air Tara Shares and shall cause each of Air Tara's Subsidiaries not to issue any new share capital.

45. The parties to this agreement are GECAS Limited and GPA Group plc. The agreement provides for the acquisition by GECAS of assets associated with GPA's leasing business. Among the assets included are the existing management information software systems, office equipment and motor vehicles.

46. The parties to this agreement are GECAS Limited and GPA Group plc. The agreement provides that, upon expiration or termination of the Management Agreement, GE Capital will licence back to GPA all software (including the treasury-related portion) associated with the Management Information Systems at the time of completion of the agreement. In a letter to the Competition Authority dated 17 September, 1993, A & L Goodbody stated that this agreement will not come into effect until the Management Agreement expires or terminates.

47. This agreement is between the Mitsubishi Trust and Banking Corporation, Public School Employees' Retirement Board, Citibank, N.A., Nomura International P.L.C., and Shannon Free Airport Development Company Limited, and each other purchaser of 8% Guaranteed Second Secured convertible notes due 2001 of GPA Group P.L.C. of the one part, and GE Capital Corporation of the other part. This is an agreement whereby GE Capital and certain potential investors agree to certain matters regarding their relationships as shareholders. The issues which form part of the agreement relate inter alia to ownership, voting rights and certain other rights and limitations.

48. Section 3.02 obliges shareholders not to sell their shares to competitors of GE Capital. Competitors are defined as any person with a business turnover greater than $200m annually in aircraft manufacturing or leasing in competition with GPA. Certain named firms are excluded although, in a letter dated 7 September, the parties indicated that some of the named firms were involved in aircraft financing. Section 4.02 provides that if, after exercising the option, GE sells more than 50% of the voting rights in GPA to a non GE company or to a number of transferees so that it ceases to retain control of GPA, the other shareholders can require GE to include them in the transfer or require GE to buy their shares itself. Section 10.01 allows GE Capital to block certain actions if, after exercising the option, it owns more than 5% but less than 50% of the capital of GPA.

49. The parties to this agreement are GPA Group plc and GE Capital Aviation Services Ltd. This agreement provides for the sublease of certain property by GPA to GE Capital.

50. This agreement is between GE Capital Corporation and GECAS and an Interested Party. This is an agreement which, it is intended, will be executed between the proposed underwriters of the transaction and each of GPA's lenders. The agreements concern consents and acknowledgements in relation to the execution of the Transaction and waivers in relation to certain claims which may arise from GECAS' performance of the Management Services. There are related indemnity agreements which provide for indemnification in the event that certain provisions of the Interested Party Agreement are unenforceable.

51. The parties to the GPA Management Assets Consent Agreement are GPA Group plc., GECAS Ltd and a consenting party. The parties to the Boeing Consent Agreement are GPA Group Plc., GE Capital Corporation, GECAS and the Boeing Company. These agreements contain the consents of third parties, whose assets are currently managed by GPA, to the transfer of such management to GE Capital. The GPA Managed Assets Consent includes:

(i) The Head Lessor Consent

(ii) The Joint Venture Company Managed Assets Consent

(iii) The Non Joint-Venture Owners Managed Assets Consent

52. The consenting parties agree that GECAS may act as manager for third parties. Provisions for dealing with a conflict of interest are included.

53. The Non Joint-Venture Owners Managed Assets Consent provides that the owners may renew their management agreement with GPA, with the consent, which will not be unreasonably withheld, of GECAS. The renewed agreements cannot exceed the term of the GPA/GECAS Management Agreement, i.e. they stop GPA having any agreements in place when the Management Agreement ends.

54. As in the case of the Non Joint-Venture Owners Managed Assets Consents, renewed agreements cannot extend past the end of the Management Agreement. The Boeing Company's consent is required pursuant to its bridge loan to GPA.

55. The parties to this agreement are (l) GPA Group plc, (2) the Original Charging Subsidiaries and (3) Natwest Aerospace Trust Company. This deed will be entered into pursuant to the issue by GPA to Natwest of certain loan stock.

56. The notifying parties submitted that the transaction would not prevent, restrict or distort competition in trade in terms of goods or services in Ireland or in any part of Ireland. The applicants further submitted that the transaction did not contravene Section 4(1) of the Competition Act, 1991 and that a Certificate should be issued by the Competition Authority under Section 4(4) of the Act for a number of reasons.

57. It was submitted that the transaction constituted a concentration, (this was the view of The Merger Task Force of the European Commission), and did not fall for review under Article 85(1) of the EEC Treaty and consequently it did not fall for review under Section 4(1) of The Competition Act, 1991 either. The parties argued that even if the Competition Authority regarded concentrations as coming within the scope of Section 4(1), the arrangements were not likely to result in the diminution of competition in the relevant market.

58. The parties pointed out that there was intense market competition with over 200 lessors each with three or more aircraft for lease. The merged entity of GPA and GE Capital would have less than 9.6% of the world aircraft leasing market according to the parties. Furthermore, the notifying parties submitted that the aircraft leasing market was not concentrated. Using the four firm concentration ratio they claimed that the combined market share of the top four lessors was only 22.9%.

59. The notifying parties further submitted that GPA and GE Capital operate in different sectors of the aircraft provisioning market. GE Capital was primarily involved in purchasing new and used aircraft from air carriers and leasing them back to carriers on a long term basis in a majority of its transactions. It was also involved in the provision of secured financing. GPA primarily bought new aircraft on a speculative basis and leased them out to air carriers on a short-term basis. In the EC the parties leased substantially different types of aircraft. As to those aircraft types that both parties leased in the EC, GPA customers were mainly chartered carriers while GE Capital customers were mainly scheduled carriers. GE Capital did not operate in the Irish market. GPA had 23.8% of the operating lease market in Ireland.

60. It was submitted that this transaction could not be viewed just in a national context, as it involved a global market which was open to competition worldwide. Competitors could be from any part of the world, with new entrants entering the market regularly. New entrants might enter relatively easily, the only significant barrier to entry being capital availability.

61. Overall therefore, it was argued by the parties that the factors outlined by the Competition Authority in Woodchester/UDT [6] and reiterated in Scully Tyrrell/Edberg [7] in relation to the findings that a concentration did not offend against Section 4(1) applied in this case.

62. The notifying parties also submitted that a Certificate would be more appropriate than a licence for this transaction because licences must be granted for a specific period of time under Section 4(2) of the 1991 Act. The parties argued that licences were normally unsatisfactory in the approval of concentrations as they would either be for too short a period to be useful, or for too long a period to be realistic. Therefore, a Certificate should issue where possible, because of its more satisfactory nature. The parties submitted certain arguments in support of a licence but these are not dealt with here.

(a) Section 4(1)

63. 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'.

64. 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.'

65. GPA and GE Capital are corporate bodies engaged for gain in the provision of services and are therefore undertakings within the meaning of the Act. The arrangements also include agreements to which subsidiaries of GE Capital and GPA, together with certain financial institutions are party. Each of these is also an undertaking. Each of the agreements listed above, which form part of the notified arrangements, constitutes an agreement between undertakings.

66. The omnibus agreement is the framework for the overall arrangement whereby GE Capital will acquire effective control over the assets of GPA. In many respect it is tantamount to a merger although GE Capital will not formally acquire control over the business of GPA immediately. The agreement is between GE Capital, GPA and GECAS. GECAS is a wholly owned subsidiary of GE Capital established for the purpose of managing GPA's aircraft leasing operations. It is engaged for gain in providing such services and is therefore an undertaking. The parties have claimed that the arrangements should be regarded as a merger or concentration and as such should be considered to be outside the scope of section 4(1). The Authority set out its views on this issue at length in Woodchester and has confirmed its opinion in a number of subsequent decisions. It sees little need to restate its opinion at length. In its view the position was well summarised by Power following the coming into force of the Act.

'Sections 4 and 5 of the Competition Act are based on Articles 85 and 86 of the EEC Treaty. It has been held by the European Court of Justice that Articles 85 and 86 can apply to certain mergers and acquisitions. In the case of Article 85, the authority for this is Cases 142 & 156/84 BAT (The Philip Morris Case) [1987] ECR 4487. The Irish Competition Authority has said that it will follow EC law and practice in so far as possible; by implication Sections 4 and 5 of the Competition Act can apply to certain M&As' [8].

67. In the Authority's opinion mergers per se do not offend against section 4(1). They are not, however, excluded from the application of the Act, rather the issue to be decided in each case is whether there is an agreement which has as its object or effect the prevention, restriction or distortion of competition in the State or any part of the State.

68. While the present arrangements will undoubtedly mean that GPA and GE Capital will no longer compete in the market for commercial jet aircraft, the Authority has indicated in previous decisions that it does not consider a reduction in the number of competitors is tantamount to a reduction in competition. In the absence of the arrangements GPA might be unable to continue in the aircraft leasing business in which case it would cease to operate as a competitor to GE Capital.

69. The notified arrangements will mean that GPA and GE Capital will not compete with each other in providing commercial jet aircraft to customers in Ireland. Prior to this GE Capital had not supplied such aircraft to any customers in Ireland, while GPA had only provided 5 aircraft to Irish customers. Consequently, the arrangement has no immediate effect on market shares. Nevertheless GE Capital was a potential competitor to GPA in the Irish market for aircraft. The Authority indicated in its first decision that it regarded competition as including potential as well as actual competition [9]. The Authority recognises, however, that there are a large number of suppliers from whom Irish based airlines can obtain jet aircraft whether by buying them outright or leasing them. These include airline manufacturers, leasing companies and other airlines which may have purchased advanced rights over aircraft yet to be completed. In addition aircraft may be purchased second-hand from existing owners. The Authority believes that to some degree second-hand aircraft may be considered to be substitutes for new aircraft. Given the existence of such a large number of suppliers, the Authority is satisfied that the arrangements are unlikely to have the effect of preventing, restricting or distorting competition in the market for jet aircraft within the State. Nor does the Authority believe that the object of the agreement was anti-competitive.

70. Section 8.03 of the agreement prevents GPA from seeking alternative offers prior to closing. The Authority has previously considered such restrictions in GE Corporation [10] and decided that they did not offend against section 4(1).

71. Section 9.02 provides for the survival of many of the warranties and undertakings entered into by GPA for up to 3 years after the management agreement ceases to operate. The parties have indicated that this merely involves a time limit within which GE Capital must exercise its legal rights if it becomes aware that any of the GPA representations and warranties is inaccurate. GPA may well be largely owned by GE Capital before the management agreement expires. This provision does not offend against section 4(1).

72. The subscription option agreement gives GE Capital an option to acquire the majority of the shares in GPA. The option must be exercised before 31 March, 1998 If the option is exercised then GE Capital will effectively acquire GPA. The combined effect of the agreements, however, is that GPA's ability to act as an independent competitor in the commercial jet aircraft market will be eliminated from the completion date. As stated in paragraph 69 above, in the Authority's opinion such arrangements are unlikely to prevent, restrict or distort competition in the relevant markets. Consequently for the same reasons the formal acquisition of control of GPA through exercise of the option agreement is considered unlikely to adversely effect competition. Such a conclusion is based on the Authority's view of present conditions and their likely evolution over time. Nevertheless it is possible, albeit unlikely, that circumstances may change before the exercise of the option, to a degree that the complete acquisition of GPA may pose some problems from a competition perspective. The Authority's view that the formal acquisition of GPA will not have an adverse effect on competition is based on its views as to the likely future state of the market at the time of such acquisition. If in fact market circumstances proved to be different at that time, the arrangement would, in the Authority's opinion, need to be re-examined under section 8(6) of the Act. This would also apply, for example, to any non-compete clauses in the eventual share purchase agreement.

73. Section 7.10 requires GPA to provide information to GE Capital concerning its business in the event of the latter giving notice of its intention to exercise its option to acquire GPA's contracts. The information concerned extends to access to GPA's contracts. In the Authority's opinion the exchange of commercially sensitive information by competitors is anti-competitive and any arrangement to do so would offend against section 4(1). In the present instance GPA and GE Capital will not in effect be competitors during the period in which the option may be exercised by GE Capital. Consequently the Authority does not consider that this provision constitutes an arrangement between competitors to exchange information and thus it is not regarded as offending against section 4(1).

74. Section 8 contains a number of restrictions on what GPA and its subsidiaries can do. Effectively these prevent GPA from taking action which would considerably alter the worth of the business. GE Capital has obtained an option to acquire the business. It therefore has certain proprietary rights. The Authority has previously considered similar restrictions in shareholding agreements and concluded that they do not offend against section 4(1) [11]. In the Authority's opinion the subscription option agreement does not offend against section 4(1).

75. The parties to this agreement are GPA and GE Capital Aviation Management Limited (GECAS). This is the agreement which removes GPA as a competitive presence from the commercial jet aircraft market by giving GECAS authority to make all commercial decisions while stopping short of acquiring the business of GPA. The issue of the arrangements whereby GPA and GE Capital cease to compete with one another in the relevant market has already been considered in paragraph 69 above and found not to offend against section 4(1). There are areas where GPA retains powers which potentially it could exercise as an independent undertaking in the market, e.g. section 2.02, but apart from the overwhelming reasons why it would not want to do so, the various powers do not add up to enough to allow it to act usefully on its own behalf. The key provision in this regard is 6.08 (b) which prevents GPA buying or acquiring any interest in aircraft on its own account while the Agreement is in force. All after-acquired aircraft automatically become subject to the Management Agreement. As the arrangement for GECAS to manage GPA's aircraft assets does not offend against section 4(1), neither does this provision. While it is possible that GPA might manage certain aircraft assets the Authority does not believe that GPA and GE Capital could be considered competitors in such circumstances. This also applies to section 7.07.

76. Section 7.04 requires GECAS to obtain the approval of GPA for certain actions. This provision is essentially designed to protect GPA's proprietary rights in the business. These provisions are, in the Authority's opinion, similar in nature to those contained in section 8 of the Subscription Option agreement, and do not offend against section 4(1) of the Act.

77. GECAS will provide GPA with research on the market, customers and financing (Section 7.1). This commercially sensitive information will not be provided, once a Notice of Termination has been served. (The relevance of this operating on Notice rather than on Termination is that in some circumstances, 24 months notice of termination has to be given). Again, in the Authority's opinion, this does not have the object or effect of preventing, restricting, or distorting competition and do not offend against Section 4(1).

78. Air Tara is a wholly owned subsidiary of GPA. It holds the registration of a number of GPA's aircraft and also provides maintenance and certain other back-up services to GPA. The agreement provides GE Capital with an option to acquire the entire issued share capital of Air Tara. As Air Tara provides certain services to GPA the relevant market is that for those services. In the Authority's opinion the acquisition of Air Tara by GE Capital will not prevent, restrict or distort competition in the market for such services.

79. Section 8.09 requires Air Tara to provide certain information to GE Capital in the event of it serving notice of its intention to exercise its option to acquire the shares. It is similar to section 7.10 of the Subscription Option Agreement and in the Authority's opinion does not prevent, restrict or distort competition for the reasons stated in paragraph 73.

80. Section 9 contains a number of restrictions on Air Tara similar to those imposed on GPA under section 8 of the Subscription Option Agreement. These do not offend against section 4(1).

81. This is an agreement whereby GE Capital agrees to purchase certain assets of GPA. These include various computer software packages as well as items such as office equipment and motor vehicles. In the Authority's opinion this agreement does not contain any provisions which offend against section 4(1).

82. This agreement provides for GECAS to licence the MIS software to GPA following the expiry of the management agreement. The software to be licensed at that stage will incorporate any modifications or upgrades made by GECAS in the intervening period. At the present time it appears unlikely that GPA will remain as an independent competitor to GECAS upon termination of the management agreement. In that event the agreement involves no restriction on competition. If GPA and GE Capital were competing undertakings, then the licensing by GECAS to GPA of such software to GPA would be a different matter. The software in that instance would provide GPA with detailed information on the commercial conduct of a competitor while GE Capital would have some indication of GPA's likely commercial conduct. Given its view that GPA is unlikely to remain as an independent competitor, the Authority believes that the agreement does not offend against section 4(1). Such a view would have to be reconsidered in accordance with section 8(6) of the Act if such expectations proved to be incorrect.

83. The parties are GE Capital on the one side, and all holders of GPA's new issue of Convertible Notes on the other. These include a number of financial institutions. These are undertakings within the meaning of the Act so that the agreement constitutes an agreement between undertakings.

84. Section 3.02 obliges shareholders not to sell their shares to "Competitors" of GE Capital. "Competitor" is defined as any person with a business of greater than $200m. annually in aircraft manufacturing, or leasing in competition with GPA. Certain named companies are included; and certain named companies are specifically excluded from the definition of competing lessor, on the basis that they were not in fact in competition. In fact in a letter dated 7 September, the parties indicated that some of the excluded firms were competitors who were already involved in aircraft financing. The notified arrangements do not include any proposal for the sale of GPA shares to competitors other than GE Capital. They merely provide that other GPA shareholders are not prevented from selling their shares to certain such undertakings. Such a provision does not of itself offend against section 4(1). The question of whether any acquisition of shares in GPA by a competitor other than GE Capital offends against section 4(1) is not considered in the present decision since it is not part of the notified arrangements.

85. Under Section 4.02., once GE Capital exercises its Option to buy shares in GPA, it is not entirely free in how it disposes of them. If it sells more than 50% of the voting rights in GPA to a non-GE company, or to a number of transferees such that GPA ceases to be controlled by GE, the other shareholders can require GE to have them included in the transfer, or require GE to buy their shares itself. There is a corresponding limitation on the other shareholders, which is that in the above situation, GE can choose to have the other shareholders sell at a fixed price to the new transferee or to GE.

86. The shareholders' participation in the arrangements is based on GE Capital's involvement. The Authority found in Cambridge/Imari that, in certain circumstances, restrictions on shareholders disposing of shares in a business without the consent of other shareholders did not offend against section 4(1). In its opinion this also applies to the present case.

87. Section 10.01 provides that if GE Capital owns less than 50% but more than 5% of the GPA shares after the exercise of their Option, they will nonetheless be able to prevent certain actions, most importantly the issue of new shares, going into voluntary winding up, and the sale of the assets/business of GPA because the votes of a majority of the shares held by GE and their Transferees will be required for those actions. This is a limitation on some of the few powers the other shareholders have in relation to the business of GPA, but only in the sense that they are prevented from doing things they could only do if they all acted in concert. Similar restrictions were found not to offend against section 4(1) in Cambridge/Imari.

88. The Sublease provides for GECAS to lease GPA's premises at Shannon. It contains no restrictive provisions and does not offend against section 4(1).

89. The interested party agreement is between GECAS and various financial institutions which have lent money to GPA. It is therefore an agreement between undertakings. This provides that interested parties consent to each of the other agreements. Since these do not offend against section 4(1), this agreement does not offend against section 4(1).

90. This is simply an agreement by each company for which GPA manages aircraft, that some of GPA's services will now be provided by GECAS. Apparently GPA has aircraft order commitments with Boeing. The Boeing Consent is Boeing's agreement, in a similar form to the above, but without any reference to GECAS' third party interests, that GECAS will be performing some aspects of GPA's obligations. In the Authority's opinion the agreements do not offend against section 4(1).

91. This is an agreement between GPA, the Original Charging Subsidiaries and Natwest Aerospace Trust Company arising out of the issue of certain convertible stock by GPA. It does not involve any restriction of competition and does not offend against Section 4(1).

92. GE Capital, GPA and the other parties to the notified agreements are undertakings within the meaning of the Competition Act. The notified agreements listed below between General Electric Capital Corporation, GPA Group plc., and certain third parties constitute agreements between undertakings. In the Authority's opinion on the basis of the facts in its possession the notified agreements do not offend against section 4(1) of the Competition Act.

CA/44/93 The Omnibus Agreement

CA/46/93 The Subscription Option Agreement

CA/47/93 The Management Agreement

CA/48/93 The Air Tara Option Agreement

CA/49/93 The Asset Purchase Agreement

CA/51/93 The License Agreement

CA/52/93 The Shareholders Agreement

CA/53/93 The Sublease

CA/54/93 The Interested Party Agreement

CA/55/93 The GPA Managed Assets Consent and Boeing Consents

CA/57/93 The Loan Stock Trust Deed.

The Competition Authority has issued the following certificate.

93. The Competition Authority certifies that, in its opinion, on the basis of the facts in its possession, the agreements listed below, between General Electric Capital Corporation, GPA Group plc., and certain third parties, notified under section 7(1) on 30 August, 1993, do not offend against section 4(1) of the Competition Act.

CA/44/93 The Omnibus Agreement

CA/46/93 The Subscription Option Agreement

CA/47/93 The Management Agreement

CA/48/93 The Air Tara Option Agreement

CA/49/93 The Asset Purchase Agreement

CA/51/93 The License Agreement

CA/52/93 The Shareholders Agreement

CA/53/93 The Sublease

CA/54/93 The Interested Party Agreement

CA/55/93 The GPA Managed Assets Consent and Boeing Consets

CA/57/93 The Loan Stock Trust Deed.

For the Competition Authority

Patrick Massey

Member

20 October 1993