We would like to ensure that you are still receiving content that you find useful – please confirm that you would like to continue to receive ILO newsletters.
16 July 2014
Darwin Airline is a Swiss-based regional carrier that serves secondary markets in Europe. The airline operates a fleet of 10 50-seat Saab 2000 turboprop aircraft to a network stretching from southern Italy to the United Kingdom. Darwin's headquarters are in Lugano and its main operating hub is in Geneva.
In November 2013 the Abu Dhabi-based carrier Etihad Airways announced its intention to acquire a 33.3% stake in Darwin. Darwin has since become:
In March 2014 the Swiss Federal Office of Civil Aviation (FOCA) launched an investigation into whether Etihad's investment complies with the rules on ownership and control of Swiss air carriers. Shortly thereafter, the European Commission began an investigation into "certain non-EU investments in European Airlines".
There may be some truth in the suggestion that Europe's airline industry has sought to influence the commission and FOCA in mounting these investigations. Etihad's James Hogan told reporters that:
"[w]e are bringing competition in the market. Some legacy carriers are using the European Commission to challenge us rather than challenge us through competition."(1)
However, the authorities must now investigate who substantially owns and effectively controls Darwin.
Switzerland is not a member of the European Union, but it has adopted most of the European Union's secondary aviation legislation by virtue of the 1999 EU-Switzerland Agreement on Air Transport,(2) including EU Regulation 1008/2008 on common rules of the operation of air services.
FOCA grants operating licences to air carriers under the regulation and national law only if certain requirements are met. These include the applicant's substantial ownership and effective control by Swiss or EU interests.
The tests for ownership and control are separate and must both be satisfied to achieve compliance. It is possible for ownership to be considered satisfactory while control is not, and vice versa.
Under the regulation, the term 'substantial' in the 'substantial ownership' criterion is interpreted as "more than 50% of the undertaking".(3)
Since Etihad's stake in Darwin does not amount to more than 50% of the ownership of equity shares and voting rights, it may be expected that FOCA will conclude that Darwin is not substantially owned by Etihad.
Greater difficulties will arise when interpreting the term 'effective control'. The term is defined in the regulation as:
"a relationship constituted by rights, contracts or any other means which, either separately or jointly and having regard to the considerations of fact or law involved, confer the possibility of directly or indirectly exercising a decisive influence on an undertaking, in particular by:
In determining control, FOCA is likely to be concerned with establishing the practical reality of who is actually making the company's decisions, as well as the positions which derive from legal powers and agreements. The relative strength of the parties may be an issue, as may the personalities involved. In a borderline case, FOCA may require statements that there are no undeclared agreements which confer powers outside the disclosed legal documents.(5)
FOCA may also consider the commission's 1995 decision in Swissair/Sabena. The commission stated(6) that the following did not qualify Swissair as having decisive influence over Sabena:
The commission noted that the structure of Sabena's board of directors, combined with majority Belgian ownership of voting shares, was such that the Belgian owners would retain the ability effectively to veto any unilateral action by Swissair (at the time, the 1999 EU-Switzerland Agreement on Air Transport had not yet entered into force and Swissair was treated as a non-EU carrier).
The commission further stated that the ownership and control requirement is not designed to prevent European carriers from cooperating with carriers from third countries, and that the provision must not be read as prohibiting European carriers from limiting their commercial freedom in the context of long-term strategic cooperation. The commission concluded that Swissair's investment would not result in Sabena forfeiting its EU carrier status.
In respect of the Etihad/Darwin investigation, the final question to be answered by FOCA will be who has the ultimate decision-making power in Darwin's management. While the definition of 'effective control' in EU Regulation 1008/2008 implies that this is essentially a legal question, it is safe to assume that FOCA will also factor public policy considerations into its legal analysis (as did the commission in Sabena/Swissair).
For further information on this topic please contact Andreas Fankhauser at Baumgartner Mächler by telephone (+41 44 215 4477), fax (+41 44 215 4479) or email (email@example.com). The Baumgartner Mächler website can be accessed at www.bmlaw.ch.
The materials contained on this website are for general information purposes only and are subject to the disclaimer.
ILO is a premium online legal update service for major companies and law firms worldwide. In-house corporate counsel and other users of legal services, as well as law firm partners, qualify for a free subscription.