The negative effects

A notice was published on October 18 by the Office for Fair Competition saying there was a proposed acquisition of Air Supplies & Catering Co. Ltd (a subsidiary of Air Malta plc) by Mediterranean Nuance Group Ltd. The majority shareholder in the bidding entity is The Nuance Group AG, an international duty-free operator based in Switzerland, together with minority shareholding by the Bianchi and Demajo groups.

Nine major Maltese companies had immediately objected to the proposed sale of Air Supplies to Nuance on the basis that it would lead to a substantial lessening of competition in the Maltese market in violation of Maltese competition law. The suppliers are in fact gravely concerned that they will be deprived of their right to continue competing for the supply of wines and spirits, perfumes and other products to Air Supplies. They had asked the OFC to block the proposed purchase or, as a minimal requirement, to impose conditions to guarantee a fair competitive environment.

The suppliers are Paolo Bonnici Ltd, Francis Busuttil & Sons Marketing Ltd, C&M Marketing Ltd, Chemimart Ltd, Alfred Gera & Sons Ltd, Albert FS Manduca Ltd, Master Wine Holdings Ltd, Ta' Xbiex Perfumery Ltd and Xtreme Co Ltd.

It now appears that Air Malta intends to conclude the contract with Nuance in the near future notwithstanding the objections of these major Maltese companies. The nine companies are again publicly calling upon the competition authorities to ensure that various conditions are imposed on Nuance. If the decision of the OFC clears the acquisition by Nuance without conditions, the companies will have no option but to appeal to the Commission for Fair Trading and to resort to legal action as necessary.

In their previous written submissions to the OFC, the suppliers had pointed out that a very significant proportion of the general overall sales of wines and spirits, perfume and other products sold by retailers in Malta and Gozo are sold through Air Supplies in the departure and arrivals lounges of the airport. The market served by Air Supplies is significantly larger than the domestic market due to the fact that the retail shops at the airport terminal enjoy a very privileged position in the country with passenger movements of more than 2.8 million persons annually as compared to only 200,000 adult consumers onshore.

Furthermore, Air Supplies has been granted exclusivity for the next nine years, up to September 2014, on the sale of all wines and spirits, tobacco and perfumes at the departure lounge of Malta International Airport. It also has exclusivity on the sale of all products in the arrivals lounge of the airport. Hence, as the only supplier at the airport, it has absolute buying power.

To date, Air Supplies has always acquired its supplies of these products from the local manufacturers and authorised importers with local suppliers competing between themselves thereby making the widest selection of products available to consumers (passengers) at the best prices possible. Therefore, all local manufacturers and authorised importers have had, to date, the opportunity to sell their products at the airport. The Maltese suppliers are extremely concerned that Nuance would use its international duty-free contacts in order to prevent any Maltese supplier from effectively continuing to compete to sell products to Air Supplies.

If Air Supplies is sold to Nuance, it is most likely that there will be a complete foreclosure of the relevant retail sale markets at the airport for local manufacturers and importers. This could in turn also lead to very negative repercussions on the entities involved including the number of Maltese persons whom they employ.

If the sale is completed, Nuance will be carrying out the day-to-day management of the retail outlets of Air Supplies. The concerns of the Maltese suppliers are aggravated by the fact that Malta has only one airport and that the Air Supplies concession enjoys exclusivity at the airport for another nine years, so the foreclosure and harm to general consumer welfare would be long-term.

In view of the strengths of Nuance on the international duty-free market, it is reasonably assumed that Nuance will be able to make purchasing gains and it does not necessarily follow that such gains would be passed on to the consumer. Nuance's purchasing strategy would be steered by its interest in gaining concessions and benefits for its operations outside Malta rather than in selling at the lowest prices for customers in the departure and arrival lounges. This is particularly so since Nuance faces no competition whatsoever in these markets and since it has no incentive to offer the most economically advantageous deals.

Given its monopoly in these relevant markets, Nuance can afford to retain any cost savings for itself to enhance its profitability. This could very well result in a reduction of choice of products made available to the consumers and a net loss in consumer benefit.

This acquisition will have enormous negative effects on competition as it will lead to the complete foreclosure of the relevant markets for the local manufacturers and suppliers of these products. Given the percentage of sales that are effected in the relevant retail sale markets at MIA compared to the national retail sale market in the rest of Malta and Gozo, this foreclosure would have a devastating effect on Maltese entrepreneurship in this sector. Not only would Maltese suppliers lose this market, which constitutes a substantial share of their sales and profitability, but this will also impact negatively on their business.

It is a known fact that both tourists and local customers tend to postpone their purchases of tobacco, wines and spirits and perfumes on the national market to the time when they may purchase them in the travel retail shop at MIA. Currently, however, this does not affect local suppliers negatively because since Air Supplies sources its supplies from them, the missed sales in the market outside the airport are made good by the sales effected at the airport's retail outlets.

Up to this date, there has always been an available opportunity for any Maltese supplier to sell at the airport. If Nuance were to acquire Air Supplies, the low percentage of sales for the local suppliers' products effected in the market outside the airport would not be compensated by sales in the airport.

For all these reasons, the Maltese suppliers had requested that the proposed acquisition be blocked by the Maltese competition authorities. It is a well-known fact that the European Commission and foreign competition authorities do block proposed acquisitions on a number of occasions where there is an anti-competitive effect as in the present case. If Nuance are to be allowed to take over Air Supplies, then the Maltese suppliers are demanding that the new management/ownership of Air Supplies has to give fair and adequate market access to any Maltese suppliers so that a significant proportion of overall supplies should at any given time and in real terms be sourced from local firms.

In order to have real access to the market, the Maltese suppliers are insisting that the Maltese authorities should impose on Nuance a set of clearly defined purchasing procedures that should be regularly vetted, reviewed, cleared and approved by the OFC. This should provide a mechanism that ensures transparency and fairness - in particular by guaranteeing that the foreign suppliers and two local suppliers who are members of the consortium that would acquire Air Supplies do not become privy to the prices offered by their competitors so as to unfairly undercut them. Breach of such a commitment by the Nuance consortium should in turn lead to the revocation of any approval that may be granted at this stage by the OFC.

Clearly, there must be a method to guarantee effective monitoring of such commitments by Nuance and Air Supplies. The Maltese suppliers firmly believe that this can be fairly and realistically achieved through the appointment of a monitoring trustee appointed by the OFC.

The primary responsibility of the monitoring trustee would be to issue opinions to the OFC on whether Air Supplies, in a specific instance, has breached this commitment. The monitoring trustee would need to be given full access to Air Supplies' documents and premises and should also be entrusted with the task of ensuring that any purchasing efficiencies gained by Air Supplies are passed on to consumers. Again, it is an established practice in the EU that the EU's competition authorities appoint monitoring trustees in similar situations so as to have an effective monitoring of commitments.

Unless the Maltese authorities impose these restrictions on Nuance and Air Supplies they will effectively be allowing an unfair and non-competitive situation at the airport which will have a substantial negative impact on many Maltese suppliers and Maltese employment. The nine companies are adamant to do all that is within their power to ensure that this does not take place and it is their firm intention to exercise all their rights at law for such purpose if a contract is finalised between Air Malta and the Nuance group without the above-mentioned adequate and real safeguards to ensure effective (and not lip-service) competition.

Mr Fava is writing on behalf of the nine suppliers.