There is a suggestion that the European airline sector will need to follow the consolidation example of the US market to ensure future profitability. In fact in a presentation to Routes Europe delegates in Aberdeen, Scotland during this year’s Strategy Summit, John Grant, executive vice president data and market intelligence for schedules specialist, OAG, revealed that in the last five years Europe has already ‘lost’ over 70 scheduled airlines with numbers declining from 241 in 2011 to 168 in 2015. If you extrapolate that trend forward there would be no European based airlines in 25 years!

It is clear that a route down the consolidation path has already started with legacy flag carriers coming together and even low-cost and regional airlines joining together through takeovers and mergers. But is consolidation the right way to move forward in Europe? Not according to Peter Morris, chief economist at Ascend and other delegates during the afternoon's second Strategy Summit panel session.

“If you wanted to breed a racehorse you are probably not going to take two dinosaurs to start you breeding programme,” offered Morris as an analogy for the European airline sector.

According to Simon McNamara, director general, European Regions Airlines Association (ERAA), one of the biggest challenges the aviation sector will face in regard to investment decisions is attracting capital, finance and investors due to current restrictions.

“Attracting finance to the European industry is very, very difficult,” he said. “We have some quite closed rules in Europe when it comes to foreign investment especially – a limit of 49 per cent by foreign companies in European airlines and no effective control.”

“It is a source of problems for the future attracting that investment to European carriers because there is not a big bunch of people out there wanting to give money to the industry which needs capital, particularly the airline business,” he added.

Jeremy Robinson, legal director at Hill Dickenson, provided a legal perspective to the subject of takeovers. “Where there is investment in Europe, or outside Europe into Europe, be it an acquisition or a partnership arrangement, more than likely given the scales we talk about there will be a problem of merger control,” he said. “That is to say a deal needs to be approved by a regulatory authority.”

This can be a complex procedure, according to the lawyer, and subject to those involved in the transaction or arrangement could see multiple regulatory authorities becoming involved in the process. It is even more complicated when you consider ‘Merger Control’ and ‘Ownership Control’ decisions in the European Union, that rely on exactly the same words in the English language, but which have two completely different meanings, said Robinson.

“Do not underestimate when there is any serious investment in Europe the amount of work you have to do to tread this very fine line between two utterly different sets of rules that look the same,” he added.

Robinson cited the recent Etihad Airways deal to take a stake in Italian flag carrier Alitalia under ‘Merger Control’ rules where a competition issue was identified with the transaction, not in Abu Dhabi, nor Italy, but Belgrade, which resulted in remedy slots being released for the Rome – Belgrade route.

“For the purpose of ‘Merger Control’ Air Serbia [an existing Etihad equity partner], Etihad and Alitalia are treated all as one airline. As we know, for that transaction to be lawful they are not, they are three separate carriers,” explained Robinson.