The recent transaction between Latvia's national airline airBaltic and Deutsche Lufthansa AG, where Lufthansa is set to acquire a 10% stake in airBaltic, has raised questions about whether it should be reported to the Latvian competition authority. The authority clarified that under the Competition Law, a deal must be reported if it results in a change of decisive influence or control, which is not the case here.

According to the information available to the Latvian competition authority, the Latvian state will retain decisive influence over airBaltic post-transaction. Therefore, the deal does not require approval from the authority. If the transaction were to result in a change of control, it would need to be reported, provided that certain turnover thresholds are met in Latvia.

The authority also explained that decisive influence can be either sole or joint. Joint decisive influence occurs when two or more entities can exert significant influence over another company, typically manifested in the ability to block strategic business decisions. In some cases, minority shareholders may also have joint decisive influence if they possess special rights.

It is important to note that merger control regulations can vary across EU member states. For instance, in Germany, acquiring minority shares may require approval from the German competition authority, while this is not mandated in Latvia. Additionally, the German authority may require notifications for mergers in specific economic sectors, even if turnover thresholds are not met.

Regarding the potential competitive impact of the airBaltic and Lufthansa deal, the authority noted that competition in the aviation sector affects consumers primarily through pricing, choice, and quality. The deal could theoretically lead to benefits such as improved flight connectivity and enhanced financial stability for airBaltic. Lufthansa may also provide management expertise to airBaltic, potentially reducing costs and increasing competitiveness.

However, the authority expressed concerns that such transactions could pose risks. Lufthansa's minority stake may influence its economic incentives, leading to less aggressive competition between the two airlines, particularly on overlapping routes. This could result in higher prices and reduced choices for consumers.

Another risk involves Lufthansa's potential access to sensitive commercial information from airBaltic, which could give it a competitive advantage. This access raises coordination risks among competitors.

The overall impact of the deal will depend on Lufthansa's actual involvement with airBaltic, the nature of their collaboration, and the strategic responses from competitors. The authority will continue to monitor the situation and provide support to the German competition authority as needed.

For any questions regarding merger notifications, market participants are encouraged to seek pre-merger consultations with the authority.