title: Council Decision (EU) 2018/1589 of 15 October 2018 appointing two alternate members, proposed by the Republic of Estonia, of the Committee of the Regions

text:
                  23.10.2018

                  EN

                  Official Journal of the European Union

                  L 264/23

         COUNCIL DECISION (EU) 2018/1589
         of 15 October 2018
         appointing two alternate members, proposed by the Republic of Estonia, of the Committee of the Regions
         THE COUNCIL OF THE EUROPEAN UNION,
         Having regard to the Treaty on the Functioning of the European Union, and in particular Article 305 thereof,
         Having regard to the proposal of the Estonian Government,
         Whereas:

                     (1)

                     On 26 January 2015, 5 February 2015 and 23 June 2015, the Council adopted Decisions (EU) 2015/116 (1), (EU) 2015/190 (2) and (EU) 2015/994 (3) appointing the members and alternate members of the Committee of the Regions for the period from 26 January 2015 to 25 January 2020. On 4 September 2015, by Council Decision (EU) 2015/1510 (4), Mr Mart VÕRKLAEV was replaced by Mr Juri GOTMANS as an alternate member.

                     (2)

                     An alternate member's seat on the Committee of the Regions has become vacant following the end of the term of office of Mr Georg LINKOV.

                     (3)

                     An alternate member's seat on the Committee of the Regions has become vacant following the end of the mandate on the basis of which Mr Juri GOTMANS (Mayor of Haanja Municipality) was proposed,

               HAS ADOPTED THIS DECISION:

            Article 1
            The following are hereby appointed as alternate members of the Committee of the Regions for the remainder of the current term of office, which runs until 25 January 2020:

                        —

                        Mr Priit VÄRK, Mayor of Paide,

                        —

                        Mr Juri GOTMANS, Member of Võru Town Council (change of mandate).

            Article 2
            This Decision shall enter into force on the date of its adoption.

            Done at Luxembourg, 15 October 2018.

                  For the Council

                  The President

               E. KÖSTINGER

            (1)  Council Decision (EU) 2015/116 of 26 January 2015 appointing the members and alternate members of the Committee of the Regions for the period from 26 January 2015 to 25 January 2020 (OJ L 20, 27.1.2015, p. 42).

            (2)  Council Decision (EU) 2015/190 of 5 February 2015 appointing the members and alternate members of the Committee of the Regions for the period from 26 January 2015 to 25 January 2020 (OJ L 31, 7.2.2015, p. 25).

            (3)  Council Decision (EU) 2015/994 of 23 June 2015 appointing the members and alternate members of the Committee of the Regions for the period from 26 January 2015 to 25 January 2020 (OJ L 159, 25.6.2015, p. 70).

            (4)  Council Decision (EU) 2015/1510 of 4 September 2015 appointing an Estonian member and an Estonian alternate member of the Committee of the Regions. (OJ L 236, 10.9.2015, p. 8).


title: Commission Decision of 05/07/2018 declaring a concentration to be compatible with the common market (Case No COMP/M.8855 - Otary RS NV / Eneco Wind Belgium NV / Electrabel NV) according to Council Regulation (EC) No 139/2004 (Only the English text is authentic)

text:
                                  EUROPEAN COMMISSION
In the published version of this decision, some                    Brussels, 5.7.2018
information has been omitted pursuant to Article                   C(2018) 4414 final
17(2) of Council Regulation (EC) No 139/2004
concerning non-disclosure of business secrets and
other confidential information. The omissions are
shown thus […]. Where possible the information
omitted has been replaced by ranges of figures or a
general description.
                                                                            PUBLIC VERSION
                                                                   To the notifying parties
  Subject:            Case M.8855 - Otary / Eneco / Electrabel / JV
                      Commission decision pursuant to Article 6(1)(b) of Council
                      Regulation No 139/20041 and Article 57 of the Agreement on the
                      European Economic Area2
  Dear Sir or Madam,
  (1)       On 1 June 2018, the European Commission received notification of a proposed
            concentration pursuant to Article 4 of the Merger Regulation by which Otary RS
            NV ("Otary", Belgium), Eneco Wind Belgium NV ("Eneco", part of the Eneco
            Group NV, The Netherlands) and Electrabel NV ("Electrabel" part of the ENGIE
            group, France) intend to acquire within the meaning of Articles 3(1)(b) and 3(4)
            of the Merger Regulation joint control of SeaMade NV ("SeaMade", Belgium). 3
            Otary, Eneco, and Electrabel are collectively referred to hereinafter as the
            "Parties" and the concentration as the "Proposed Transaction".
  1.        THE PARTIES
  (2)       Otary focuses on the development, construction and operation of three Belgian
            offshore windfarm projects (Rentel, Seastar and Mermaid), with a combined total
            capacity of approximately 800 MW. It is jointly owned and controlled by the
            following 8 companies: Dredging Environmental & Marine Engineering NV
  1         OJ L 24, 29.1.2004, p. 1 (the 'Merger Regulation'). With effect from 1 December 2009, the Treaty
            on the Functioning of the European Union ('TFEU') has introduced certain changes, such as the
            replacement of 'Community' by 'Union' and 'common market' by 'internal market'. The
            terminology of the TFEU will be used throughout this decision.
  2         OJ L 1, 3.1.1994, p. 3 (the 'EEA Agreement').
  3         SeaMade is the most likely name of the joint venture, but the final name may be different.
  Commission européenne, DG COMP MERGER REGISTRY, 1049 Bruxelles, BELGIQUE
  Europese Commissie, DG COMP MERGER REGISTRY, 1049 Brussel, BELGIË
  Tel: +32 229-91111. Fax: +32 229-64301. E-mail: COMP-MERGER-REGISTRY@ec.europa.eu.
 ---pagebreak---     (DEME), Green Offshore NV, Elicio NV, S.R.I.W. Environnement SA, Z-Kracht
    NV, Aspitavi Offshore II NV, Socofe SA, and Power@Sea NV.
(3) Eneco manages onshore and offshore windfarm projects in Belgium. It is part of
    the Eneco Group active in the production of electricity and supply of electricity
    and gas to private and business customers in various countries in the EU.
(4) Electrabel is engaged in the generation of electricity and heat, and the supply of
    electricity and natural gas to customers in Belgium, the Netherlands and
    Luxembourg. It is part of the Engie group ("Engie", France), a global energy
    player.
(5) SeaMade (the "Proposed JV") is a joint venture set up for the purpose of
    developing, constructing and operating the two Belgian offshore windfarm
    projects Mermaid (235,2 MW) and Seastar (252 MW).
2.  THE OPERATION
(6) Pursuant to a Term Sheet entered into on 20 February 2018 (the "Term Sheet"),
    the offshore wind farm projects Mermaid and Seastar (under development),
    located in the Belgian North Sea, will be merged into the existing Seastar NV
    ("Seastar"). Seastar is currently owned and solely controlled by Otary (51%),
    whereas the eight Otary shareholders each hold a non-controlling minority
    interest of 6,125%. Mermaid THV ("Mermaid") is currently a contractual non-full
    function joint-venture between Otary (65%) and Electrabel (35%) holding the
    domain concession for the development, construction and operation of the
    Mermaid wind project.
(7) Once the merger between Mermaid and Seastar is completed, Eneco will purchase
    12,5% of the shares in Seastar through a share and purchase agreement with
    Otary. As a result of the Proposed Transaction, Otary will indirectly hold 70% of
    the voting rights in the Proposed JV,4 Eneco 12.5% and Electrabel 17.5%.
(8) SeaMade's Board of Directors will consist of 11 directors: 8 Otary
    representatives, 2 Electrabel representatives and 1 Eneco representative. Strategic
    decisions, including the approval of the business plan and the annual budget, will
    be approved by the majority of the directors but will always require a positive
    vote of all Otary directors as well as the positive vote of 1 Electrabel director and
    the Eneco director. Therefore, Otary, Eneco, and Electrabel will jointly control
    SeaMade.
3.  THE CONCENTRATION
(9) The Parties submit that the Proposed JV is full-function because: (i) it will own,
    operate and maintain the two offshore windfarm projects, will finance
    construction through project finance and will have its own management and staff
    dedicated to day-to-day operation; (ii) it will act as an independent generator and
    wholesale supplier of electricity on the market; (iii) the electricity generated by
4   Otary will indirectly hold its shares in SeaMade through an intermediate holding company, Otary
    Bis NV, in which Otary will hold a controlling stake of 51% and the individual Otary shareholders
    will each hold a 6.125% non-controlling stake.
                                                    2
 ---pagebreak---      the two offshore windfarms will be tendered and awarded at market-compliant
     terms; and (iv) the Belgian State has granted a 20-year renewable concession for
     the exploitation of the Mermaid and Seastar windfarms.
(10) On the basis of the information provided in the Form CO and available in the
     Term Sheet,5 the Commission finds that the Proposed JV will have sufficient
     resources to operate independently on the market and notes, in addition, that the
     Proposed JV may recruit its own personnel and that, in any event, seconded
     personnel will be fully dedicated and act under the authority of the JV
     management for the development of the offshore windfarm projects in question.
(11) The Commission also finds that the Proposed JV is intended to operate on a
     lasting basis in view of the duration of the already granted concessions, the fact
     that the Proposed JV will operate the two windfarms after their development and
     that the Term Sheet has been entered without limitations in time.
(12) In addition, since the Proposed JV will develop and operate new electricity
     production capacities, it will not take over a specific function within the parent
     companies' business activities. To the contrary, the Proposed JV will directly
     tender under market conditions the electricity generated by its windfarms and thus
     have its own access to the market.
(13) Furthermore, while the Parties are also active in the generation and supply of
     electricity, the Commission observes that the Proposed JV will tender to the
     market the entire electricity production of its two windfarms and award it in the
     form of [Information on the structure that SeaMade will apply in bringing its
     electricity generation capacity to the market as well as the size of the blocks of
     electricity], by means of [Information on the duration of the PPAs concluded by
     SeaMade] Power Purchase Agreements ("PPAs"). Thus, the Proposed JV will not
     have any dependency on sales to its parents, as all its sales will be done through
     competitive tenders and, therefore, no production has been committed from the
     outset to the benefit of the Parties.
(14) Pursuant to section 7 of the Term Sheet, the Parties are entitled to matching rights
     [Structure and overall size of matching rights offered to the Parties to the
     Transaction with regard to SeaMade's electricity generation capacity]. However,
     if matching rights are exercised, it will be at market price calculated by reference
     to the most competitive bids submitted to reach 100% cumulative output.6
     Moreover, […] approximately […]% of production will in any event be awarded
     to the most competitive bidder, i.e., is not subject to any matching rights.7 As a
     result, whatever the production acquired by the Parties from the Proposed JV, it
     will always be valued at normal commercial conditions. Hence, the Commission
5    Form CO, section 3.6.
6    Form CO, paras. 135-148; Reply of the Parties to the request for information of 18 June 2018.
7    Contrary to the submission of a respondent to the market investigation, the Proposed JV can be
     considered to deal with its parents at arm's length commercial terms even though the most
     competitive bid may possibly be submitted by one of the Parties (Reply of a third-party to the
     request for information of 4 June 2018, and follow-up correspondence of 14 June 2018).
                                                     3
 ---pagebreak---      concludes that the relationship between the joint venture and its parents will be
     truly commercial in character.8
(15) In view of the above, the Commission finds that the Proposed JV will perform on
     a lasting basis all the functions of an autonomous economic entity and will
     therefore be economically autonomous from an operational viewpoint. Hence, the
     Proposed JV constitutes a concentration within the meaning of Article 3(1)b and
     Article 3(4) of the Merger Regulation.
4.   EU DIMENSION
(16) The undertakings concerned have a combined aggregate world-wide turnover of
     more than EUR 5 000 million9 [EUR 74 286 million]. Each of them has an EU-
     wide turnover in excess of EUR 250 million [Otary (and its shareholders) EUR
     [Otary's (and its shareholders') EU-wide turnover], Eneco (Eneco Group) EUR
     [Eneco Group's EU-wide turnover], Electrabel (Engie) EUR [Electrabel's
     (Engie's) EU-wide turnover]], but they do not achieve more than two-thirds of
     their aggregate EU-wide turnover within one and the same Member State. The
     notified operation therefore has an EU dimension.
5.   COMPETITIVE ASSESSMENT
(17) The Proposed JV will own, develop, construct and operate two offshore
     windfarms in the North Sea, based on a 20-year renewable concession awarded
     by the Belgian State in 2012 following a competitive process. The Proposed JV
     will therefore engage in the generation and wholesale supply of electricity once it
     becomes (partly) operational in the third quarter of 2020. In contrast, the
     Proposed JV will not – [Strategic information regarding SeaMade's activities in
     the space of the development, construction and operation of wind farms].
5.1. Market Definition
(18) The Proposed JV will be active in the generation and wholesale supply of
     electricity where the Parties are also active, thus giving rise to a horizontal
     overlap. The Parties are also active directly or indirectly in the retail supply of
     electricity in Belgium, which gives rise to a vertical link with the Proposed JV.10
8    The Commission also notes that the Belgian energy regulator ("CREG") has the statutory
     obligation to review the market conformity of the PPA prices and to approve the concluded PPAs,
     as well as the right to order the adjustment of the correction factor applicable to the LCOE
     (Levelized Cost of Electricity) used for the calculation of the minimum price per MWh of
     produced electricity guaranteed under the applicable renewable energy certificate (REC) scheme
     (see Article 14, §1ter, 1° of the Royal Decree of 16 July 2002 aimed to establish mechanisms
     designed to promote the production of electricity from renewable sources). Form CO, paras. 124-
     125 and reply of the CREG to the request for information of 19 June 2018.
9    Turnover calculated in accordance with Article 5 of the Merger Regulation and the Commission
     Consolidated Jurisdictional Notice (OJ C 95, 16.4.2008, p. 1).
10   The Parties contend that the vertical link in question is only potential in view of the fact that the
     electricity retailers (including Electrabel and Eneco) will not acquire electricity directly from the
     Proposed JV but rather from its off-takers (Form CO, para. 162). However, the Parties also
     indicate that if they were to acquire electricity under PPAs from the Proposed JV (and thus
                                                      4
 ---pagebreak--- 5.1.1. Generation and wholesale supply of electricity
       5.1.1.1.          Product market definition
(19)   The Parties submit that the generation and wholesale supply of electricity
       constitutes one single relevant product market that: (i) has not and should not be
       segmented on the basis of the source of electricity generation (e.g., renewable
       sources); but (ii) should encompass electricity imports and physical and financial
       trading on organised markets (e.g., Belpex) and OTC.11
(20)   The Commission has consistently defined a relevant product market
       encompassing both the generation and wholesale supply of electricity,
       irrespective of the generation sources and trading channels.12 The Commission
       has also considered in the past whether the financial trading of electricity
       belonged to the same product market as the generation and wholesale supply of
       electricity, or to distinct markets.13 Generally, financial trading has been
       distinguished from wholesale supply due to differences in settlement, duration
       and overall function since financially settled contracts are about trading risk while
       physically traded ones are about trading electricity for consumption.14 However,
       in EDG/Segebel, the Commission concluded in relation to Belgium that the
       relevant market comprised electricity generation, imports and trading on
       organised markets or OTC for both physically and financially settled products.15
(21)   In the present case, the distinction between physically and financially settled
       trades can be left open since the Proposed Transaction is unlikely to raise serious
       doubts on a narrow definition limited to physically traded electricity. Regarding a
       possible segmentation according to the source of electricity, the question arises
       whether a dynamic assessment ought not to take into account Belgium's
       commitment to exit nuclear electricity production. However, that commitment
       will in any event not materialise before 2025 and implementing measures still
       need to be adopted and may then be adjusted to ensure security of supply or
       reflect energy cost developments.16 Moreover, nuclear plants still account for
       56% of total electricity production in Belgium.17 Hence, a segmentation
       according to generation source, and in particular excluding nuclear, does not
       appear to be a plausible option in the present context.
       actually become off-takers themselves) [Strategic information regarding the Parties' (future)
       activities in the segments of the wholesale and retail supply of electricity] (Form CO, para. 151).
11     Form CO, paras. 177-179.
12     See cases COMP/M.7927 – EPH/ENEL/SE, paras. 9-12; COMP/M.6984 – EPH/Stredoslovenska
       Energetika, para. 15; M.3268 – Sydkraft/Graninge, paras. 19-20; COMP/M.8660 –
       Fortum/Uniper, paras. 18-21.
13     See cases COMP/M.5549 – EDF/Segebel, paras. 79-83; COMP/M.3868 – DONG/Elsam/Energi
       E2, paras. 241-246; COMP/M.8660 – Fortum/Uniper, para. 19-21.
14     See case e.g. COMP/M.3868 – DONG/Elsam/Energi E2, para. 252; COMP/M.8660 –
       Fortum/Uniper, paras. 43-48.
15     Case COMP/M.5549 – EDF/Segebel, para. 21.
16     Belgium            Federal         Energy          Strategy,         30          March         2018:
       http://www.presscenter.org/files/ipc/media/source6892/Federale_energiestrategie.pdf.
17     CREG Annual Report 2017, p. 47.
                                                        5
 ---pagebreak--- (22)   Overall, the precise market definition can be left open since no serious doubts
       arise as to the compatibility of the Proposed Transaction with the internal market,
       even on the narrowest plausible segmentation, which in the context of this case is
       the generation and wholesale physical supply of electricity irrespective of the
       source.
       5.1.1.2.       Geographic market definition
(23)   The Parties acknowledge that the market for the generation and wholesale supply
       of electricity has historically been considered national in scope but submit that, in
       the present case, it should include the Benelux, France and Germany due to: (i)
       coupling of day-ahead and intraday markets; (ii) forward markets' price
       convergence; and (iii) increasing interconnection capacity.18 In any event, the
       Parties consider that no competitive concerns would arise if one were to consider
       only a hypothetical Belgian market, and provided data accordingly.19
(24)   The Commission has indeed historically defined the market for the generation and
       wholesale supply of electricity at national level.20 However, the Commission has
       also recognised the relevance of interconnection capacity between Member States
       and of pricing relationships across interconnection points. In the present case, the
       Parties have not submitted evidence supporting their claim that the market should
       be considered wider than Belgium, except for some high-level references to new
       interconnection projects.
(25)   In any event, the precise geographic market definition may be left open in the
       present case since no serious doubts arise as to the compatibility of the Proposed
       Transaction with the internal market even on the narrowest plausible
       segmentation, which is Belgium.
5.1.2. Retail supply of electricity
       5.1.2.1.       Product market definition
(26)   The Parties submit that the definition of the market for the retail supply of
       electricity and its possible segmentation can be left open since no competition
       concerns arise irrespective of how the market is defined.21
(27)   The Commission has previously considered that the retail supply of electricity
       constitutes a separate product market from the generation and wholesale supply of
       electricity, and that potential narrower segments can be distinguished based on
       factors such as different needs and profiles on the demand side and different
       services and technologies on the supply side. In this regard, separate product
       markets have been defined for the retail supply of electricity to: (i) large industrial
18     Form CO, para. 182.
19     Form CO, para. 183.
20     See cases COMP/M.5979 – KGHM/TAURON Wytwarzanie/JV, para. 24; COMP/M.5711 –
       RWE/Ensys, para. 21; COMP/M.4180 – GDF/Suez, para. 726.
21     Form CO, para. 203.
                                                 6
 ---pagebreak---        and commercial customers; (ii) small industrial and commercial customers; and
       (iii) household customers.22
(28)   In the present case, the precise product market definition may be left open since
       no serious doubts arise as to the compatibility of the Proposed Transaction with
       the internal market irrespective of the segmentation considered.
       5.1.2.2.          Geographic market definition
(29)   The Parties submit that the definition of the geographic scope of the market for
       the retail supply of electricity can be left open since no competition concerns arise
       irrespective of how the market is defined.23
(30)   The Commission has historically defined the retail electricity markets as national
       in scope.24 Under specific conditions, the Commission has also considered
       broader or narrower definitions. In relation to Belgium, the Commission has in
       the past excluded wider than national markets and, while considering the
       possibility of regional markets for household customers, has consistently assessed
       the retail supply of electricity, irrespective of the relevant segments, at national
       level.25 In the present case, the Commission has not received indication that retail
       markets should be considered at a level narrower than Belgium as a whole.
(31)   In any event, the precise geographic market definition may be left open since no
       serious doubts arise as to the compatibility of the Proposed Transaction with the
       internal market irrespective of the geographic market considered.
5.2.   Substantive Assessment
(32)   As noted, the Proposed JV gives rise to a horizontal overlap between the
       Proposed JV and the Parties in the generation and wholesale supply of electricity.
       Likewise, a possible vertical link arises between the Proposed JV's activities in
       the generation and wholesale supply of electricity and the Parties' activities in the
       retail supply of electricity.26
5.2.1. Horizontal overlap in the generation and wholesale supply of electricity
(33)   The electricity generated by the Proposed JV will be offered to the market by
       means of PPAs, subject to approval by the Belgian energy regulator (CREG). 27
22     See, e.g., in relation to Belgium case COMP/M.5549 – EDF/Segebel, para. 132.
23     Form CO, para. 202.
24     See cases COMP/M.6984 – EPH/Stredeoslovenska Energetika, para. 18; COMP/M.5827 –
       Elia/IFM/50 Hertz, para. 24; COMP/M.5496 – Vattenfall/ Nuon Energy, para. 15; COMP/M.5467
       – RWE/Essent, paras. 283-284.
25     Case COMP/M.4180 – Gaz de France / Suez, paras. 738-743; Case COMP/M.5549 –
       EDF/Segebel, para. 138.
26     For the sake of completeness, the Commission notes that [Confidential information with regard to
       the structure and the development of the Seastar and Mermaid offshore wind farms]. Moreover, a
       number of similar projects are underway in Belgium and abroad, and will still be awarded in the
       future. Likewise, ENGIE is a supplier of offshore substations linking the windfarm to the
       transmission grid, but is only one potential supplier of that type of equipment to the Proposed JV.
27     In addition, the CREG has the statutory obligation to periodically review the market conformity of
       the PPA price. If this review reveals a difference between the PPA price and an average
                                                        7
 ---pagebreak---        The Proposed JV will therefore engage in the generation and wholesale supply of
       electricity in Belgium. In turn, that market is affected because the combined
       market share at the level of Belgium of the Proposed JV and the Parties is above
       20%, both in terms of capacity and generation, as apparent from Table 1 below.
       TABLE 1. GENERATION AND WHOLESALE SUPPLY OF ELECTRICITY (BELGIUM)
                                                Capacity (%)                       Generation (%)
                                         2016     2014-2016         2021            2016    2014-2016
     Proposed JV                           0            0            1.6              0           0
     Otary                               [0-5]        [0-5]         [0-5]           [0-5]       [0-5]
     Otary shareholders                  [0-5]        [0-5]         [0-5]           [0-5]       [0-5]
     Eneco                               [0-5]        [0-5]         [0-5]           [0-5]       [0-5]
     Electrabel                        [40-50]      [40-50]       [30-40]         [60-70]     [50-60]
     Combined                          [40-50]      [40-50]       [40-50]         [60-70]     [50-60]
     EDF Luminus                        [5-10]       [5-10]        [5-10]          [5-10]      [5-10]
     Others (incl. decentralised       [30-40]      [30-40]       [20-30]         [10-20]     [10-20]
     sources)28
     Imports                           [10-20]      [10-20]       [20-30]          [5-10]     [10-20]
     Total                                100          100           100             100         100
                                   Source: Form CO, paras. 214 and 217.
(34)   The Notifying Party submits that the total electricity capacity of the future
       Mermaid and Seastar offshore wind farms (487.2 MW) makes up less than 2% of
       the total Belgian capacity (of approx. 25 000 MW).29 According to the Parties, the
       capacity share of the Proposed JV would even drop to 1.6% based on 2021
       capacity estimates.30
(35)   The Commission observes that the Belgian energy regulator (CREG) relies on
       different market share indicators, which exclude imports and other decentralised
       energy sources. Table 2 reproduces the market share in the generation and
       wholesale supply of electricity in Belgium, as compiled in the 2017 CREG
       Annual Report.31
       nominated price, the aforementioned correction factor will be adjusted by the CREG (see Form
       CO, para. 124).
28     Decentralised energy sources generally refer to generation close to consumption sites that is fed
       into the distribution grid.
29     Form CO, para. 123. The share is around 2.3% if imports are discounted.
30     Form CO, para. 214. The share is around 2% if imports are discounted.
31     CREG Annual Report, p. 40. The Commission notes that production data per power source
       contained in the same annual report (p. 47) do include decentralised sources.
                                                        8
 ---pagebreak---        TABLE 2. GENERATION AND WHOLESALE SUPPLY OF ELECTRICITY (BELGIUM)
                                          Capacity (%)                       Generation (%)
                                     2015        2016       2017        2015        2016        2017
     Electrabel                        71          73        72          67           79         77
     EDF Luminus                       12          14        14          12            9         11
     E.ON                               4           0         0           8            1          0
     Others                            14          14        14          13           11         12
     Total                            100         100        100         100         100        100
                              Source: CREG Annual Report 2017, p. 40.
(36)  On the basis of the CREG data, thus excluding imports and decentralised
      generation, the total electricity capacity of the future Mermaid and Seastar
      offshore windfarms (487.2 MW) amount to 3.3% of the total Belgian capacity
      (currently of approx. 14 069 MW).32 In turn, respondents to the market
      investigation have indicated that the capacity of the Proposed JV at Belgian level
      is "significant" as it would operate Belgium's "biggest offshore wind park".33
      However, irrespective of the different datasets considered and of the relative
      significance of the Seastar and Mermaid windfarms' production, the Proposed JV
      will bring a limited addition to the Parties' generation portfolio, which is not such
      as to raise serious doubts in respect of the Proposed Transaction's compatibility
      with the internal market.
(37)  At the outset, the Parties explain that the concessions for the Seastar and Mermaid
      windfarms were awarded to Otary and Otary and Electrabel, respectively, in 2012
      based on a competitive process.34 The Proposed Transaction does not therefore
      cause an increment in the generation portfolio of either Otary or Electrabel. In
      particular, [Structure and size of matching rights offered to the Parties to the
      Transaction with regard to SeaMade's electricity generation capacity],35
      [Structure and size of matching rights offered to the Parties to the Transaction
      with regard to SeaMade's electricity generation capacity].36 With respect to
      Seastar, Otary and its parents already own the concession and the associated right
      to dispose of the production, while Eneco [Confidential information with regard
      to agreements concluded between Otary and Eneco pre-dating the current
      Transaction] 12.5% interest in the Proposed JV. 37 Hence, the Commission finds
      that the merger-specific increment (if any, in particular for Electrabel) brought
      about by the Proposed Transaction is in reality much more limited than what the
      above market shares suggest. In any event, the exercise of matching rights will
      realistically entitle each of the Parties to only a certain percentage of the Proposed
32    CREG Annual Report 2017, pp. 40 and 47.
33    Replies of third-parties to the request for information of 4 June 2018 (and follow-up
      correspondence).
34    Form CO, para. 121. See also reply of the CREG to the request for information of 19 June 2018.
35    Term Sheet, section 7.1; Form CO, paras. 138-140
36    Form CO, paras. 143-144.
37    Reply to the requests for information of 29 June 2018 and 2 July 2018.
                                                      9
 ---pagebreak---      JV's production, thus limiting the increment that may be allocated to each of
     them.
(38) Secondly, while the Proposed JV is bound to ensure the market-compliant nature
     of PPAs entered into for the sale of the Seastar and Mermaid windfarms'
     production, subject to CREG oversight,38 the Commission understands that the
     Proposed JV is not as such under an obligation to offer and supply that production
     or a specific percentage thereof, to third-parties. Hence, the Commission
     disagrees with the submission of a respondent to the market investigation to the
     effect that, absent the Proposed Transaction, the Parties in general and Electrabel
     in particular would have had to be treated under the same commercial terms as
     any third-party bidder (or vice-versa) and, notably, would not have benefited from
     the matching rights provided for under the Term Sheet.39 To the contrary, the
     Commission understands that, absent the Proposed Transaction, [Structure and
     size of priority rights offered to the Parties to the Mermaid THV] [Confidential
     information with regard to potential business strategies to be deployed by Otary
     within Seastar NV prior to the establishment of the SeaMade JV], [Confidential
     information with regard to agreements concluded between Otary and Eneco pre-
     dating the current Transaction]. In turn, under the Proposed JV marketing
     arrangement, Electrabel will not have access, […], to a greater amount of
     electricity offtake compared to the situation prevailing in the absence of the
     Proposed Transaction.
(39) Against this background, the Parties submit that the Proposed JV aims to create
     synergies and lower the costs of the completion of the Mermaid and Seastar
     windfarm development, and of their subsequent operation, in view of the
     reduction in the guaranteed production support price under the renewable energy
     certificate scheme recently modified by the Belgian government. 40 As a result,
     according to the Parties, the Proposed JV will enable new capacity to be brought
     to the market, which is inherently pro-competitive.41 Moreover, under the
     modified Belgian renewable energy certificate scheme, the Parties are bound to
     maximize the technical availability of the wind turbines during the period of
     support, so that they would have no ability and incentive to limit the amount of
     the Proposed JV's production.42
(40) The market investigation confirmed the Parties' views. In particular, respondents
     indicated that, inasmuch as it would add capacity on the market, the Proposed
     JV's "likely impact is that wholesale market prices will on average decrease as
38   See footnote 7 above.
39   Reply of a third-party to the request for information of 4 June 2018, and follow-up
     correspondence.
40   Form CO, paras. 28 and 119. The scheme was modified by a Royal Decree of 9 February 2017
     with a view to ensuring compliance with the Commission Guidelines on State aid for
     environmental protection and energy 2014-2020 (see CREG 2017 Annual Report, p. 11).
41   Form CO, paras. 120.
42   Form CO, paras. 129-130. The Commission has been able to verify that this obligation is part of
     the LCOE Agreement entered into on 27 October 2017 between the Parties and the Belgian
     Minister for Energy and the North Sea (see Annex 4 to the Term Sheet). Moreover, the
     Commission notes that the production of the Proposed JV will in any event be marketed by means
     of [Information on the duration of the PPAs concluded by SeaMade] PPAs, thus leaving it limited
     scope, if any, to vary the production level of the Seastar and/or Mermaid windfarms.
                                                       10
 ---pagebreak---      more production with low marginal costs enters the market" and thus that it can
     be expected to have a "depressing effect on the wholesale market", "improve
     liquidity in the Belgium market" and "help the market to become more
     competitive".43 One respondent did "not expect this transaction to have an
     important impact on the competitive market dynamics for the supply for
     electricity as its impact in terms of volume are relatively low and not constant".44
     Such a view also echoes the Parties' contention that the total electricity capacity
     of the Mermaid and Seastar windfarms remains limited so that, notwithstanding
     its importance in enabling Belgium to reach renewable energy targets, the overall
     impact of the Proposed JV will be limited.45
(41) In contrast, one respondent argued that the concentration would lead to a
     wholesale price increase based on the assumption that the production of the
     Proposed JV would be channelled to former incumbent Electrabel, thus remaining
     "captive", and that the addition of wind production would generally increase price
     volatility and specifically prices on the intra-day and balancing markets, while
     also raising risk premiums included in the physical day-ahead and financial
     trading prices.46 The first assumption is inaccurate since the entire production of
     the Seastar and Mermaid windfarms will be tendered out; the envisioned
     [Information on the duration of the PPAs concluded by SeaMade] PPAs will be
     entered into at market terms (under CREG's supervision) and Electrabel's
     matching rights are [Structure and size of matching rights offered to the Parties to
     the Transaction with regard to SeaMade's electricity generation capacity].
     Moreover, the possible consequences associated with an increase in the share of
     renewable energy sources in the production mix in Belgium are not specific to the
     Proposed JV and any possible specific effects were, in any event, not quantified
     by the respondent in question.47 Conversely, in a subsequent submission, the
     respondent indicated that the addition of a capacity comparable to that of the
     Seastar and Mermaid windfarms could have a significant depressing effect on
     wholesale prices.48
(42) The Parties also submit that other wind park projects are currently under
     construction (Rentel – 309 MW and Norther – 370 MW) or under development
     (Northwester II – 224 MW) in Belgium, which will bring additional volumes to
     the market while equally reducing any increment in their generation portfolio by
     the time the Proposed JV starts production.49 Moreover, the Parties indicate that
     the Belgian government recently decided to award concessions for the
     construction and operation of additional offshore wind farms by means of
     competitive tendering processes, which will further dilute the significance of the
43   Replies to question 3 of the request for information of 4 June 2018.
44   Reply to question 3 of the request for information of 4 June 2018.
45   Form CO, para. 123.
46   Reply to question 3 of the request for information of 4 June 2018.
47   The Commission notes that other respondents also alluded to the challenges associated with the
     increase in renewable – in particular wind – production, including in relation to price volatility,
     balancing costs and grid investments. These challenges are well-known to the industry and all
     stakeholders as being part of the energy transition process.
48   Reply to the request for information of 4 June 2018 and following correspondence of 14 June
     2018.
49   Form CO, para. 123.
                                                      11
 ---pagebreak---         Proposed JV while creating additional opportunities for third-parties.50 The
        Commission observes that these new opportunities were recently announced as
        part of Belgium's Energy Strategy and that respondents to the market
        investigation have indicated their interest to compete for new offshore wind
        concessions in the future.51
                                                    *
(43)    In view of the above, the Commission concludes that the Proposed Transaction
        does not give rise to serious doubts as to its compatibility with the internal market
        in respect of the generation and wholesale supply of electricity.
5.2.2. Vertical relation between the generation and wholesale supply of electricity and
        the retail supply of electricity
(44)    The Proposed Transaction will also give rise to an affected vertical relation due to
        the Electrabel's share of the retail supply of electricity in Belgium, as apparent
        from Table 3.
                    TABLE 3. RETAIL SUPPLY OF ELECTRICITY – BELGIUM
                                                       2016 (%)                 2014-2016 (%)
       Aspiravi (Otary shareholder)                        [0-5]                       [0-5]
                 Electrabel                              [40-50]                     [50-60]
         Eneco (+ENI since 2017)                          [5-10]                      [5-10]
             Parties combined                            [50-60]                     [50-60]
               EDF Luminus                               [10-20]                     [10-20]
              Lampiris (Total)                             [0-5]                       [0-5]
                   Other                                 [20-30]                     [20-30]
                   Total                                    100                         100
                                       Source: Form CO, para. 256.
(45)    According to the Parties, no competition concern may arise from the "theoretical
        vertical link" between the Proposed JV and the Parties' retail activities, chiefly
        that of Electrabel, because the Proposed Transaction does not result in an
        increment of Electrabel's share on the wholesale market compared to the
        counterfactual scenario and, in any event, may have only a very remote impact (if
        any) on Electrabel's position on the retail market.52
(46)    Upon review of all available data and evidence, the Commission concurs with the
        Parties that the risk of foreclosure arising from the Proposed JV appears
        immaterial due to: (i) the pre-existing character of the vertical links between
        Seastar, Otary and Eneco, on the one hand, and Mermaid, Otary and Electrabel,
        on the other hand; (ii) the modest scale of the production of the Seastar and
        Mermaid windfarms, compared to the total amount of electricity supplied at retail
50      Idem.
51      Respectively: (i) Belgium Federal Energy Strategy, 30 March 2018; and (ii) Replies to question 1
        of the request for information of 4 June 2018.
52      Form CO, paras. 257-258.
                                                       12
 ---pagebreak---        level in Belgium (approx. 2.5%); (iii) the fact that the Parties will each
       realistically capture only a part of the total production of the Proposed JV; and
       (iv) the fact that third-party retailers will be invited to compete for the Proposed
       JV's production, and that approximately […]% of it will in any event be awarded
       to the most competitive bidder.
                                                *
(47)   In view of the above, the Commission concludes that the Proposed Transaction
       does not give rise to serious doubts as to its compatibility with the internal market
       in respect of the retail supply of electricity.
5.2.3. State aid aspects
(48)   In its assessment, the Commission took into account the grant of State aid to the
       Seastar and Mermaid projects,53 notably the grant of renewable energy certificates
       (REC) entitling the Proposed JV to benefit from a guaranteed production support
       price. In that connection, the Belgian REC scheme was approved by the
       Commission by decision dated 8 December 2016 in case SA.45867, according to
       which Belgium will notify the aid to be granted to the Seastar and Mermaid
       projects.54. Generally, though, the Commission considers that the benefit of the
       support scheme in question and the potential State aid aspects thereof are not
       inherent to the Proposed Transaction but rather attached to the production of
       electricity by each of the Seastar and Mermaid (and other) windfarms. In any
       event, the potential aid would not alter the outcome of the merger control
       assessment of the Proposed Transaction, as set forth under sections 5.2.1 and
       5.2.2 above.
6.     CONCLUSION
(49)   For the above reasons, the European Commission has decided not to oppose the
       notified operation and to declare it compatible with the internal market and with
       the Agreement on the European Economic Area. This decision is adopted in
       application of Article 6(1)(b) of the Merger Regulation and Article 57 of the
       Agreement on the European Economic Area.
                                                          For the Commission
                                                          (Signed)
                                                          Margrethe VESTAGER
                                                          Member of the Commission
53     Case T-156/98, RJB Mining plc v Commission [2001] ECR II-337, para. 114.
54     Decision of the Commission in Case SA.45867 (2016/N) – Belgium, para. 25.
                                                  13


title: Commission Decision of 01/10/2018 declaring a concentration to be compatible with the common market (Case No COMP/M.8985 - The Boeing Company / KLX, Inc.) according to Council Regulation (EC) No 139/2004 (Only the English text is authentic)

text:
                                 EUROPEAN COMMISSION
                                                                 Brussels, 1.10.2018
                                                                 C(2018) 6508 final
In the published version of this decision, some
information has been omitted pursuant to
Article 17(2) of Council Regulation (EC)
No 139/2004 concerning non-disclosure of business                            PUBLIC VERSION
secrets and other confidential information. The
omissions are shown thus […]. Where possible the
information omitted has been replaced by ranges of
figures or a general description.
                                                                 To the notifying party
 Subject:             Case M.8985 - Boeing / KLX
                      Commission decision pursuant to Article 6(1)(b) of Council
                      Regulation No 139/20041 and Article 57 of the Agreement on the
                      European Economic Area2
 Dear Sir or Madam,
 (1)       On 29.8.2018, the European Commission received notification of a proposed
           concentration pursuant to Article 4 of the Merger Regulation by which The
           Boeing Company ('Boeing', United States) acquires, within the meaning of
           Article 3(1)(b) of that Regulation, control of the whole of KLX Inc. ('KLX',
           United States) by way of purchase of shares ('Transaction').3 Boeing and KLX are
           designated hereinafter as the 'Parties'.
 1.        THE PARTIES AND THE OPERATION
 (2)       Boeing is a US-based company, active in the aircraft, defence and space
           industries and related services. Boeing is also a supplier of security systems and
           provider of aftermarket services for the aerospace market, including the
           distribution of aerospace parts and chemicals.
 1       OJ L 24, 29.1.2004, p. 1 (the 'Merger Regulation'). With effect from 1 December 2009, the Treaty
         on the Functioning of the European Union ('TFEU') has introduced certain changes, such as the
         replacement of 'Community' by 'Union' and 'common market' by 'internal market'. The terminology
         of the TFEU will be used throughout this decision.
 2       OJ L 1, 3.1.1994, p. 3 (the 'EEA Agreement').
 3       Publication in the Official Journal of the European Union No C 314, 06.09.2018, p. 14.
 Commission européenne, DG COMP MERGER REGISTRY, 1049 Bruxelles, BELGIQUE
 Europese Commissie, DG COMP MERGER REGISTRY, 1049 Brussel, BELGIË
 Tel: +32 229-91111. Fax: +32 229-64301. E-mail: COMP-MERGER-REGISTRY@ec.europa.eu.
 ---pagebreak--- (3)   KLX, also based in the US, is active in the distribution of small aerospace parts
      and chemicals.
(4)   The envisaged Transaction concerns the acquisition of all shares in KLX by
      Boeing. The proposed Transaction constitutes a concentration within the meaning
      of Article 3(1)(b) of the Merger Regulation.
2.    EU DIMENSION
(5)   The undertakings concerned have a combined aggregate world-wide turnover of
      more than EUR 5 000 million4 (Boeing: […], KLX: […], combined: […]). Each
      of them has an EU-wide turnover in excess of EUR 250 million (Boeing: […],
      KLX: […]), but they do not achieve more than two-thirds of their aggregate EU-
      wide turnover within one and the same Member State. The notified operation
      therefore has an EU dimension pursuant to Article 1(2) of the Merger Regulation.
3.    MARKET DEFINITION
3.1.  Introduction
(6)   The Transaction primarily concerns the distribution of aerospace parts and
      chemicals to aircraft manufacturers and the aftermarket.
(7)   Aerospace parts and chemicals includes several and diversified categories of
      products required as inputs across all phases of a lifecycle of an aircraft. These
      products can be divided into four broad categories: A-class parts (high-value
      repairable parts), B-class parts (parts that can be economically repaired when
      damaged), C-class parts (low value parts that are not repaired, but replaced when
      damaged), and aerospace chemicals (liquids, composite materials and other
      consumables used for the manufacture, repair and general upkeep of an aircraft).
(8)   In light of the activities of the Parties, as explained below under 4.1, for the
      purpose of the assessment of the proposed Transaction, only C-class parts, in
      particular aerospace fasteners and aerospace chemicals are relevant.
(9)   Fasteners are small C-class parts, such as bolts, nuts and screws, used to connect
      all the different parts of an aircraft together in primary structural areas, secondary
      structure, pressurized and non-pressurized applications, and to transfer loads from
      one part to another. Most fasteners are manufactured according to industry
      standards ('standard fasteners'), while other fasteners are produced according to
      specifications developed by manufacturers and aircraft producers who hold the
      design rights ('proprietary fasteners').
(10)  The distribution of aerospace small parts and consumables takes place through
      different channels. They are distributed either directly by parts manufacturers,
      independent distributors, or through brokers. The customers' preference about
      which channel to use is highly dependent on the quantity required, lead time and
      desire for value-add services. Manufacturers often require minimum order
      quantities, while distributors are able to provide smaller quantities, have shorter
4    Turnover calculated in accordance with Article 5 of the Merger Regulation.
                                                      2
 ---pagebreak---        delivery times as they have product stocks and can also provide additional
       services like kitting. In most cases, customers rely on multiple distribution
       channels and they procure the needed aerospace small parts via competitive
       tender offers, long term contracts, or ad-hoc quotes.
(11)   The demand for small aerospace parts depends both on the demand for new
       aerospace equipment and on the demand for replacement parts during the life
       cycle of an aircraft. The customer base is therefore diversified and encompasses
       original equipment manufacturers ('OEMs') and aircraft manufacturers, as well as
       the so-called 'aftermarket', e.g. airlines, maintenance, repair and overhaul
       operators ('MROs') and fixed based operators.
3.2.   Product Market Definition
3.2.1. Commission's Precedents
Upstream market: distribution of aerospace parts and chemicals
(12)   In a previous decision, the Commission considered that the distribution of
       aerospace parts could be divided into different submarkets, such as, on the one
       hand, the distribution of large aerospace parts by airframe and component
       manufacturers, and, on the other hand, the distribution of small parts, requiring
       regular and quick replacement, by independent distributors. Alternative markets
       segmentations were also considered for parts dedicated for large commercial
       aircraft and for general aviation/regional aircraft and for commercial and for
       military aircraft. However, the product market definition was ultimately left
       open.5
(13)   In a more recent decision, the Commission also considered that the market for the
       supply of aerospace parts could be segmented based on the difference between
       customers, i.e.: OEMs and aircraft manufacturers for original parts and MROs or
       airlines for spare parts.6
(14)   The Commission did not address in any previous decision the distribution of
       aerospace chemicals.
Downstream markets: aircraft manufacturing and aftermarkets
(15)   In relation to aircraft manufacturing, Commission precedents have generally
       differentiated the following main categories of aircraft: commercial aircraft,
       military aircraft, helicopters and general aviation aircraft.7 Within commercial
       aircraft the precedents further differentiated between three segments:8 large
       commercial aircraft, regional aircraft and business/corporate jets. As to large
       commercial aircraft, a further distinction was considered between narrow-body
       (or single-aisle) aircraft, and wide-body (or twin-aisle) aircraft. In its most recent
       decision,9 the Commission also considered that, in light of the introduction of
5     Commission Decision in Case M.4241, Boeing/Aviall, para. 10.
6     Commission Decision in Case M.6410, UTC/Goodrich, paras 192-195.
7     Case M.1601, Allied Signal / Honeywell, para 11.
8     Case IV/M.877, Boeing / McDonnell Douglas, paras 15 and 16; Case M.1601, Allied Signal /
      Honeywell, paragraph 13; Case M.2220, General Electric / Honeywell, para 10.
9     Commission Decisions in Case M.8858, Boeing/Safran/JV, para 14.
                                                       3
 ---pagebreak---        additional aircraft, the previous distinction between narrow-body large
       commercial aircraft and regional aircraft may be blurred, but the sub-
       segmentation of the product market for commercial aircraft was ultimately left
       open.
(16)   The Commission’s decisional practice has also differentiated four main categories
       of aviation MRO services based on the part of the aircraft to be serviced and the
       level of service required: line maintenance, heavy maintenance, engine
       maintenance and component maintenance (here referred to as “component
       MRO”). The Commission also considered that these markets might be subdivided
       into separate markets according to the type of the aircraft, distinguishing between
       commercial aviation on the one hand and business aviation on the other hand, but
       did not reach a conclusion as regards market definition. 10
3.2.2. The Parties' view
(17)   As regards the upstream market, the Parties submit that it is appropriate to
       consider an overall market including distribution of all categories of aerospace
       parts. In their view, this product market includes also the distribution of aerospace
       chemicals. This market may be further segmented between larger and more
       complex parts and small spare parts. Further, given that customers […], the
       Parties agree with the approach in Boeing/Aviall11 not to distinguish between
       different categories of spare parts.
(18)   The Parties further submit that at the distribution level the market should not be
       further segmented according to customer categories. From the demand-side, the
       products are functionally interchangeable, there are similar product and service
       requirements across all categories and pricing is also similar. From the supply-
       side, most manufacturers and distributors are able to serve all customer
       categories. However, the Parties acknowledge that for some products it may be
       relevant to distinguish between supply to OEMs (i.e. first install) and supply to
       the aftermarket (where both Parties are active), as they request different services.
(19)   As concerns the downstream market, the Parties aknowledge the previous
       segmentation between commercial aircraft, military aircraft, helicopters and
       general aviation aircraft.
(20)   Further, the Parties note that there are three key categories of market participants
       in the aftermarket, namely MROs, FBOs and airlines, but submit that the
       aftermarket should not be segmented accordingly.
3.2.3. Commission's assessment and conclusion
(21)   As concerns the upstream market, respondents to the market investigation
       explained that they procure aerospace parts both from distributors and
       manufacturers, stressing that while the same products can be purchased through
       both channels, distributors are able to offer additional services.12 Furthermore,
       respondents suggested that the relevant market may encompass the distribution of
10    Commission Decisions in Case M.6410, UTC/Goodrich, paras 174-181, and in Case M.8658,
      UTC/Rockwell, paras 129-138.
11    Commission Decision in Case M.4241, Boeing/Aviall, para. 10.
12    Non-confidential minutes of a phone call with an OEM on 6 August 2018
                                                       4
 ---pagebreak---       all aerospace parts or at least broad categories of aerospace parts and aerospace
      chemicals. However, one respondent highlighted that about 78% of the
      distribution takes place through distributors exclusively dedicated to fasteners.13
      Market participants also did not consider any further sub-segmentation on the
      basis of narrower categories of products (e.g. standard and proprietary fasteners,
      different types of fasteners).14
(22)  As regards a segmentation of the distribution market for aerospace small parts and
      chemicals based on the type of aircraft for which the parts are dedicated, or based
      on the end customer, the market investigation confirmed that a segmentation
      might only be justified on the basis of the end customer and such between OEMs
      (first install) and the aftermarket (spare parts), but not further in relation to
      different subsegments of the aftermarket.15
(23)  The Commission therefore considers that the relevant product market may include
      the distribution via all channels of all small aerospace parts and chemicals or of
      categories of products, such as fasteners, while a narrower segmentation would
      not be appropriate.
(24)  In any event, for the purposes of the present decision, the exact product market
      definition for the distribution of aerospace small parts and aerospace chemicals
      can be left open as no serious doubts arise under either of the alternative market
      definitions.
(25)  As regards the downstream markets, the Commission considers it appropriate to
      assess the aircraft manufacturing market in line with the segmentation followed in
      its precedents described above at paragraph (15), while the exact sub-
      segmentation of the product market for commercial aircraft can be left open in
      this case as no serious doubts arise under either of the alternative market
      definitions.
(26)  As regards aftermarkets, one respondent to the market investigation indicated that
      it would not be appropriate to segment the MRO services as described above at
      paragraph (16)16, while the market investigation as a whole was not conclusive on
      the relevant segmentations.
(27)  In any case, as regards aftermarkets, the Commission considers that, for the
      purposes of the present decision, the exact product market definition can be left
      open as far as it concerns any possible distinction based on the level of service
      required, the part of the aircraft to be serviced or to be replaced, or the type of
      aircraft concerned, as no serious doubts arise under either of the alternative
      market definitions.
13   Non-confidential minutes of a phone call with a distributor on 14 September 2018.
14   Non-confidential minutes of a phone call with two distributors on 23 August 2018 and 14
     September 2018.
15   Non-confidential minutes of a phone call with two distributors on 23 August 2018 and 14
     September 2018.
16   Non-confidential minutes of a phone call with an independent MRO on 11 September 2018.
                                                      5
 ---pagebreak--- 3.3.   Geographic market definition
3.3.1. Commission's precedents
(28)   In previous decisions, the Commission took the view that the appropriate
       geographic market definition for distribution of aerospace parts is at least EEA-
       wide, if not worldwide. However, the precise geographic market definition was
       ultimately left open.17
(29)   The Commission also considered in its precedents18 that the downstream markets,
       both for aircraft manufacturing and aftermarket services, are worldwide in
       geographic scope, without ultimately reaching a final conclusion.
3.3.2. Parties’ views
(30)   The Parties submit that the market for the distribution of small aerospace parts is
       at least EEA-wide and likely global.
(31)   In line with the Commission’s precedents, the Parties submit market shares for
       the downstream market at worldwide level.
3.3.3. Commission’s assessment and conclusion
(32)   As regards the upstream market, the market investigation provided indications
       that both manufacturers and independent distributors of aerospace parts supply
       world-wide.19 For aerospace chemicals, the respondents indicated similarly that
       the market is worldwide or at least EEA-wide.20
(33)   As regards the downstream markets, the Commission considers it appropriate to
       assess the aircraft manufacturing market and the aftermarkets as worldwide in
       line with the segmentation followed in established precedents.
(34)   Accordingly, the Commission considers, in line with its precedents, that the
       relevant markets are worldwide or at least EEA-wide. For the purpose of this
       decision, the precise geographic market definition can be left open as no serious
       doubts arise under either of the alternative market definitions.
4.     COMPETITIVE ASSESSMENT
4.1.   Activities of the Parties and relevant overlaps
(35)   Both parties are active in the distribution of small aerospace parts and aerospace
       chemicals. Boeing is also active downstream as an aircraft manufacturer and an
       MRO.
17    Commission Decision in Case M.4241, Boeing/Aviall, paras 11-12.
18    Commission Decisions in Case M.2220, General Electric/Honeywell, paras 10-34; Case M.1601,
      Allied Signal/Honeywell, para. 13; Case M.6410, UTC/Goodrich, recitals 196-200, Case M.8658,
      UTC/Rockwell, paras 208-211.
19    Non confidential version of the minutes of the phone call with an OEM on 6 August 2018.
20    Non confidential version of the minutes of the phone call with a manufacturer on 23 August 2018;
      Non confidential version of the minutes of the phone call with an airline on 27 July 2018.
                                                       6
 ---pagebreak--- (36)   Boeing distributes aerospace parts through two different channels. Boeing’s
       Global Services business unit ('Boeing Spares’) primarily sells Boeing and third-
       party proprietary parts as well as a small amount of industry standard parts, to
       aftermarket customers. In addition, in 2006, Boeing acquired Aviall Inc. ('Aviall'),
       a distributor of aerospace parts and aerospace chemicals, active also in the sale of
       large aerospace parts such as engine components.
(37)   Further, Boeing set up a captive distributor, under the name 'Boeing Aggregated
       Standards Network ('BASN'), that supplies Boeing approved fasteners ('BAC
       fasteners') to Boeing internally and to OEM (component) suppliers for use in
       manufacturing components for Boeing aircraft.
(38)   Boeing operates on the downstream market for aircraft manufacturing and it
       procures parts essentially from its OEM suppliers, which may supply it with the
       final assembled aircraft part or the individual component. Furthermore, Boeing
       has also a […] activity on the aftermarket as an MRO.
(39)   KLX is a distributor of small aerospace parts and aerospace chemicals, offering a
       range of services such as logistics and management kitting. The two most
       important categories of products sold by KLX are fasteners, which make-up
       [60-70]% of its total turnover, and aerospace chemicals accounting for [10-20]%
       of its turnover.21
(40)   In light of the activities of the Parties, the Transaction gives rise to limited
       horizontal overlaps on the distribution of small aerospace parts and aerospace
       chemicals, which do not result in any affected markets. Further, from the
       information provided by the Parties, it follows that the sub-categories of small
       parts where the Parties mainly overlap are: fasteners, lighting, electrical products
       and bearings.
(41)   The Transaction also leads to vertical links between the upstream distribution
       activities of KLX and Boeing's activities downstream as an aircraft manufacturer
       and an MRO.
4.2.   Market structure
4.2.1. Upstream market: distribution of small aerospace parts and aerospace chemicals
(42)   On the market for the distribution of small aerospace parts and aerospace
       chemicals, the Parties have a post-merger combined share of [5-10%] worldwide
       and [5-10%] EEA-wide (Boeing: [0-5%] WW and below [0-5%] EEA,
       KLX: [5-10%] WW and [5-10%] EEA). Table 1 below reports the market shares
       of the Parties on the market for the distribution of narrower categories of small
       aerospace parts and chemicals where the Transaction would give rise to overlaps
       between the Parties. Table 2 reports estimated market shares for the distribution
       of fasteners based on end-customers.
21    Form CO, Table 2 at p. 5.
                                                7
 ---pagebreak--- Table 1 – Market shares for the distribution aerospace fasteners, aerospace
lightings and aerospace chemicals, based on value (2017)
             Aerospace             Aerospace       Aerospace            Aerospace             Aerospace
             Fasteners             Chemicals       Lighting             Electrical            Bearings
                                                                        Products
Boeing       [0-5]% WW             [0-5]% WW       [5-10]% WW           <[5-10]% WW           <[5-10]% WW
             [0-5]% EEA            [0-5]% EEA      [0-5]% EEA           <[5-10]% EEA          <[5-10]% EEA
KLX          [10-20]% WW           [0-5]% WW       [0-5]% WW            <[5-10]% WW           <[5-10]% WW
             [10-20]% EEA          [0-5]% EEA      [0-5]% EEA           <[5-10]% EEA          <[5-10]% EEA
Combined [10-20]% WW               [0-5]% WW       [5-10]% WW           <[10-20]% WW          <[10-20]% WW
             [10-20]% EEA          [0-5]% EEA      [0-5]% EEA           <[10-20]% EEA         <[10-20]% EEA
Source: Estimates of the Parties, Form CO Table 4 at p. 7.
Table 2 – Market shares for the distribution of aerospace fasteners to OEMs and
the aftermarket, based on value (2017)
                           OEMs                                     Aftermarket
Boeing (Aviall and <[0-5]% WW                                       [0-5]% WW
Boeing Spares)             <[0-5]% EEA                              [0-5]% EEA
KLX                        [10-20]% WW                              [5-10]% WW
                           [10-20]% EEA                             [5-10]% EEA
Combined                   [10-20]% WW                              [5-10]% WW
                           [10-20]% EEA                             [10-20]% EEA
Wesco                      [10-20]% WW                              [0-5]% WW
                           [10-20]% EEA                             [0-5]% EEA
Pattonair                  [5-10]% WW                               [5-10]% WW
                           [5-10]% EEA                              [0-5]% EEA
Source: estimates of the Parties, Form CO Annex 7B
(43)    As concerns the competitive landscape, according to the information provided by
        the Parties and respondents to the market investigation,22 the distribution market
        is highly fragmented. KLX is the market leader for fasteners, followed by Wesco,
        Pattonair and Aligne Aerospace.
4.2.2. Downstream markets
(44)    Boeing’s estimated worldwide market share for 2017 in the market for the
        manufacture of large commercial aircraft is [40-50]%. In the segment of large
        commercial aircraft above 90 seats, Boeing held market shares of [50-60]%. If
        regional aircraft with less than 90 seats are included in the market definition,
        Boeing’s market share amounts to [40-50]%. In the segment of large commercial
        aircraft of more than 120 seats, Boeing's market share amounts to [50-60]%.
        Finally, in the sub-segment of wide-body commercial aircraft of 200 seats or
        more, Boeing held a market share of [50-60]%.23 Therefore the transaction results
        in vertically affected markets. 24
22    Non-confidential version of the minutes of the phone call with a distributor on 23 August 2018.
23    Estimates of the Parties, in terms of number of aircraft deliveries in 2017. See Response by Parties
      to RFI of 20 September 2018.
24    Boeing is also active in the manufacture of military aircraft, but its share in this segment is under
      30%, and it has a limited share in the manufacture of business aviation aircraft. The market shares
                                                        8
 ---pagebreak--- (45)    As regards aftermarkets, Boeing has an estimated market share of [0-5]% on the
        overall global aftermarket, and below [5-10]% under any conceivable product or
        geographic segmentation25 thereof.
4.3.    Assessment of horizontal effects
4.3.1. Parties’ arguments
(46)    The Parties submit that, for the distribution of small aerospace parts, their
        combined market shares on an EEA and worldwide basis are modest and do not
        result in a horizontally affected market. The same applies even considering a
        narrower level, at the specific product categories where the Parties’ distribution
        activities overlap.
(47)    Further, the merged entity would be constrained by the numerous other
        competitors present in the small aerospace parts distribution segment as well as
        the narrower distribution segments for each of the aforementioned product
        categories.
4.3.2. Commission’s assessment
(48)    The Commission observes that, according to the available information, with
        respect to the distribution of small aerospace parts (including aerospace
        chemicals) on a worldwide market as well as EEA-wide, the estimated combined
        market shares of the parties are limited (below [10-20]%). The combined market
        shares for any narrower overlapping category are also below [5-10]%. Only on
        the market for the distribution of fasteners to OEMs, the estimated combined
        EEA market shares are close to [20-30]%.
(49)    In light of the comments received by market participants during the investigation,
        the Commission has carefully examined whether it is likely that, further to the
        Transaction, the Parties would be able to raise prices for aerospace fasteners.
(50)    From the evidence collected during the market investigation26, it results that KLX
        is in a leading position on the distribution market, at least, for aerospace fasteners,
        where it can offer a wide product portfolio and very competitive services.
(51)    However, the Transaction is not likely to remove an important competitive
        constraint. The addition of Boeing market share is very small and KLX and
        Boeing are not close competitors.27 Their customers’ base is different, as KLX is
        more dedicated to OEMs while Boeing is focused on the aftermarket. Further,
        KLX distributes predominantly standard fasteners, Boeing proprietary fasteners.
(52)    The market shares suggest that the merged entity would continue facing strong
        competition from small parts manufacturers, independent distributors and brokers.
      are calculated in in terms of deliveries: estimates of the Parties, Form CO and reply to an RFI of
      20 September 2018.
25    See above para. (16).
26    Non-confidential version of the minutes of the phone call with a distributor on 11 September 2018,
      non-confidential version of the minutes of the phone call with an airline on 30 July 2018.
27    Non-confidential version of the minutes of the phone call with a aerospace hardware manufacturer
      on 8 August 2018.
                                                        9
 ---pagebreak---       The vast majority of respondents to the market investigation confirmed that
      customers would not have difficulties switching to other suppliers. The
      distribution market is said to be competitive and there are several alternative
      suppliers, who would not face capacity constraints and would have the ability and
      incentive to increase their supplies.28
(53)  Further, from the feedback received during the market investigation, it results that
      switching costs and entry barriers are limited. First, KLX’s services are not
      considered as 'must-have' in the industry and the Parties do not have a network of
      exclusive agreements with small parts manufacturers that may limit otherwise the
      ability of downstream players to switch to competitors. The contractual
      relationships in the industry are indeed rather diversified: exclusive agreements
      are not common. Customers have normally both long term contracts as well as ad
      hoc purchases. Long term contracts are usually concluded after a competitive
      selection through a tender and renegotiations of the contractual terms are possible
      under certain circumstances. Furthermore, market participants have business
      relations with multiple manufacturers and distributors. Overall, switching costs
      are not considered as high by the respondents to the market investigation. In
      addition, customers can revert directly to small parts manufacturers (thus
      bypassing distributors) and/or, as e.g. done in the past by Boeing and Airbus, can
      internalise their distribution.29
(54)  As mentioned above at paragraph (43), the market does not present a concentrated
      structure and coordinated effects are therefore unlikely.
(55)  Furthermore, during the investigation, manufacturers of aerospace fasteners and
      of aerospace chemicals did not raise any concerns about the fact that the
      Transaction would impede competition by creating buyer power.30 One
      manufacturer of hardware explained that “while it is true that KLX and Boeing
      will increase their combined procurement share, […] further to the Transaction
      the parties would [not] increase their buyer bargaining power", while according
      to one manufacturer of aerospace chemicals “aircraft manufacturers like Boeing
      are relatively small customers for chemical products, compared to the quantities
      of aerospace chemicals procured by airlines, MROs and OEMs”.
(56)  For the reasons set out above, the Commission concludes that the Transaction
      does not raise serious doubts as to its compatibility with the internal market as
      regard any horizontal effect of the concentration on the distribution of small
      aerospace parts and aerospace chemicals.
4.4.  Assessment of vertical effects
(57)  As the Parties are not active in the manufacture of neither aerospace parts nor
      aerospace chemicals, the Transaction does not raise any vertical links with the
      market upstream from those products.
28   Non-confidential version of the minutes of the phone call with an OEM on 27 July 2018.
29   Non-confidential version of the minutes of the phone call with an OEM on 27 July 2018.
30   Non-confidential version of the minutes of the phone calls with two aerospace hardware
     manufacturers and with a aerospace chemicals manufacturer on 7 August 2018, 8 August 2018, and
     23 August 2018.
                                                      10
 ---pagebreak--- (58)   However, the proposed Transaction leads to two vertical links with the activities
       of Boeing on markets downstream from the markets for the distribution of
       aerospace parts and chemicals. As to the aftermarket, as indicated above at
       paragraph (44) and (46), Boeing has a […] market share of [0-5]% on the overall
       aftermarket, and below [5-10]% under any conceivable product and geographic
       sub-segment. However, the Transaction gives rise to a vertically affected market
       in relation to the manufacture of large commercial aircraft.
(59)   The Commission has thus investigated whether the Transaction is likely to give
       rise to a significant impediment to effective competition by restricting
       downstream rivals’ access to an important input (input foreclosure) or by
       restricting upstream rivals’ access to a sufficient customer base (customer
       foreclosure).
4.4.1. Parties' arguments
(60)   The Parties submit that the Transaction does not create a risk of input nor
       customer foreclosure.
(61)   As concerns the risk of input foreclosure, the Parties explain that the merged
       entity would not have the ability to foreclose. KLX and Boeing are not 'must
       have' suppliers and for each category of small parts distributed by them there are a
       number of manufacturers selling directly as well as a range of other distributors.
(62)   The merged entity would also not have any incentive to foreclose. At present,
       KLX sells to customers other than Boeing, who could turn to the other numerous
       suppliers. As such, any attempt to foreclose competitors or raise prices would
       only drive customers away, and lead to higher losses than any potential gains.
(63)   In addition, the overlapping products' categories would not be important cost
       factors. The cost of small aerospace parts is a de minimis portion of the total cost
       to manufacture or maintain an aircraft.
(64)   As to the risk of customer foreclosure, the Parties contend that Boeing would not
       have the ability to foreclose. This would be the case because Boeing and all the
       OEMs supplying Boeing do not represent a significant portion of total demand for
       small aerospace parts. Other distributors would continue to have access to a large
       customer base even if Boeing shifted all of its small parts (or of any sub-
       categories thereof) purchases to KLX post-Transaction.
(65)   Boeing would have no incentive to reduce its purchases from third-party
       distributors where those distributors offer better pricing or service. Boeing has
       continued to purchase from independent distributors despite owning Aviall for
       over a decade.
(66)   There would be no risk of detrimental effects on the downstream market. There
       could in any event be no noticeable impact on cost of Boeing’s competitors even
       if other small parts suppliers would raise their prices, given the insignificance of
       the cost of small spare parts products in relation to the manufacturing cost of the
       aircraft overall.
                                                11
 ---pagebreak--- 4.4.2. Commission's assessment
       A. Input foreclosure
(67)   A vertical relationship presupposes that the product or service of the undertaking
       active in the upstream market in question constitutes an important input to the
       product or service of the undertaking active in the downstream market. The
       market investigation confirmed that fasteners are critical components despite the
       fact that they do not represent a significant cost factor.31
(68)   However, evidence from the market investigation supports the conclusion that it
       is unlikely that the merged entity would have the ability to foreclose Boeing’s
       competitors on the downstream market. As already explained above at
       paragraphs (51) to (54) and (55), the Commission considers, on the basis of the
       evidence available to it, that the merged entity does not have a significant degree
       of market power and the input market does not present an oligopolistic structure.
(69)   Further, the incentive to foreclose depends on the degree to which foreclosure
       would be profitable. The Commission understands that Boeing would not have
       the incentive to raise prices to the OEMs, current customers of KLX, in order to
       raise costs for competing aircraft manufacturers as this strategy would be
       countervailed by the fact that Boeing’s main competitor on the downstream
       market for the aircraft manufacturing, (i.e. Airbus) does also have integrated
       distribution services (i.e. its subsidiary Satair) and could easily switch its demand
       from KLX to Satair, if not to other parts distributors and manufacturers..
(70)   In addition, the market investigation has indicated that the merged entity would
       have little scope for raising rival aircraft manufacturers or MRO’s costs. Owing to
       the low input cost that small aerospace parts represent in the overall price of an
       aircraft or of the services provided by MROs, any possible price increase could
       not materially affect the ability of rival aircraft manufacturers or MROs to
       compete in the downstream markets.
(71)   For the reasons set out above, the Commission considers that the Transaction
       would be unlikely to have detrimental effects on competition on the downstream
       markets as it woud not result in foreclosure of downstream competitors’ access to
       small aerospace parts or aerospace chemicals.
       B.       Customer foreclosure
(72)   As regards customer foreclosure, in light of the evidence available, the
       Commission finds that the Transaction is not likely to result in customer
       foreclosure for the reasons set out below.
(73)   First, the Commission notes that at present Boeing […] on its captive BASN
       program for the sourcing of proprietary Boeing fasteners. From the information
       submitted by the Parties, and as also confirmed by the respondents to the market
       investigation32 and public sources33, in the effort to better control the quality of
31    Non-confidential version of the minutes of the phone call with a distributor on 14 September 2018.
32    Non-confidential version of the minutes of the phone call with an aerospace hardware manufacturer
      on 8 August 2018.
                                                       12
 ---pagebreak---         fasteners, Boeing switched from using standard fasterners to proprietary BAC
        fasteners for approximately […] of its requirements. As a consequence Boeing's
        demand for standard fasteners from third parties is very limited.
(74)    Furthermore, from the information submitted by the Parties, it results that Boeing
        sources […]. Purchases from independent distributors tend to be […], whereas
        purchases from manufacturers tend to account for [...].
(75)    Despite its market share (see paragraph (44)), the overall demand of Boeing to
        independent distributors is therefore too limited to provide the ability to engage in
        any strategy that could result in any plausible customer foreclosure of upstream
        competitors of KLX.
(76)    Second, as submitted by the Parties, past conduct of Boeing after the acquisition
        of Aviall supports the claim that Boeing does not have any incentive to engage in
        customer foreclosure. Boeing has continued to purchase from independent
        distributors despite owning Aviall for over a decade.
(77)    Third, as regards the possible overall impact of a foreclosure strategy, fasteners
        are low value parts that make up less than 5% of the total cost of any aircraft
        component, so that any impact on final customers appears remote even in the
        unlikely event that Boeing would stop purchasing small parts from third party
        sources and, as a result, potentially raise costs for competitors on the downstream
        markets.
4.4.3. Conclusion
(78)    For the reasons set out above, the Commission concludes that the Transaction
        does not raise serious doubts as to its compatibility with the internal market as
        regards any vertical effect of the concentration between, on the one hand, the
        distribution of small aerospace parts and aerospace chemicals and, on the other
        hand, the manufacturing of aircraft and relevant aftermarkets.
5.      CONCLUSION
(79)    For the above reasons, the European Commission has decided not to oppose the
        notified operation and to declare it compatible with the internal market and with
        the EEA Agreement. This decision is adopted in application of Article 6(1)(b) of
        the Merger Regulation and Article 57 of the EEA Agreement.
                                                           For the Commission
                                                           (Signed)
                                                           Margrethe VESTAGER
                                                           Member of the Commission
33    E.g. Tauber institute for Global operations: Boeing: The Fight for Fasteners, available online
      https://www.supplychainmarket.com/doc/boeing-case-study-0001 (25th September 2028).
                                                    13