9810211 UNITED STATES OF AMERICA In the Matter of GERALD W. SCHWARTZ, a person, ONEX CORPORATION, a corporation, SC INTERNATIONAL SERVICES, INC., a corporation, and SKY CHEFS, INC., a corporation. Docket No. C-3828 COMPLAINT The Federal Trade Commission (“Commission”), having reason to believe that Gerald W. Schwartz, through his subsidiaries, Onex Corporation, SC International Services, Inc. and Sky Chefs, Inc., entered into a letter of intent to acquire all the voting stock of Ogden Aviation Food Services, Inc. and Ogden Aviation Food Services (ALC), Inc., and that the acquisition, if consummated, would result in a violation of Section 5 of the Federal Trade Commission Act, 15 U.S.C. § 45, and Section 7 of the Clayton Act, 15 U.S.C. § 18, and it appearing to the Commission that a proceeding in respect thereof would be in the public interest, hereby issues its complaint, stating its charges as follows: A. THE RESPONDENTS 1. Respondent Gerald W. Schwartz (“Schwartz”) is a natural person with a principal place of business located at Onex Corporation, 161 Bay Street, Toronto, Ontario, Canada M5J 2S1. 2. Respondent Onex Corporation (“Onex”), a wholly-owned subsidiary of Gerald W. Schwartz, is a corporation organized, existing, and doing business under and by virtue of the laws of Ontario, Canada, with its office and principal place of business located at 161 Bay Street, P.O. Box 700, Toronto, Ontario, Canada M5J 2S1. 3. Respondents Schwartz and Onex are engaged in diverse businesses that include in-flight catering, chain restaurant food service, electronics manufacturing and other businesses. 4. Respondent SC International Services, Inc. (“SCIS”), is a corporation organized, existing, and doing business under and by virtue of the laws of the State of Delaware, with its office and principal place of business located at 524 East Lamar, Arlington, TX 76011. SCIS is an indirect subsidiary of Onex. 5. Respondent Sky Chefs, Inc. (“Sky Chefs”), is a corporation organized, existing, and doing business under and by virtue of the laws of the State of Delaware, with its office and principal place of business located at 524 East Lamar, Arlington, TX 76011. Sky Chefs is a wholly-owned subsidiary of SCIS. 6. Respondent Sky Chefs has in-flight catering kitchens situated throughout the United States and the world. In 1997, Sky Chef’s worldwide catering kitchens posted sales of approximately $ 1.3 billion. Its 1997 revenue from its U.S. catering operations was over $1 billion to which its Las Vegas catering kitchen contributed $12.9 million. 7. At all times relevant herein, Respondent Schwartz has been and is now engaged in commerce, as “commerce” is defined in Section 1 of the Clayton Act, 15 U.S.C. § 12, and is a natural person whose business is in or affecting commerce as “commerce” is defined in Section 4 of the Federal Trade Commission Act, 15 U.S.C. § 44. 8. At all times relevant herein, Respondents Onex, SCIS and Sky Chefs have been and are now engaged in commerce, as “commerce” is defined in Section 1 of the Clayton Act, 15 U.S.C. § 12, and are corporations whose business is in or affecting commerce as “commerce” is defined in Section 4 of the Federal Trade Commission Act, 15 U.S.C. § 44. B. OGDEN 9. Ogden is engaged in diverse businesses, including entertainment, energy and aviation support services. Ogden Aviation Food Services, a wholly-owned indirect subsidiary of Ogden Corporation, provides in-flight catering services to airlines. In 1997, Ogden posted sales of $164 million from its catering activities in the United States, of which $9.1 million were from its Las Vegas, Nevada, catering kitchen. C. THE PROPOSED ACQUISITION 10. On March 6, 1998, Mr. Schwartz, through his indirect subsidiary Sky Chefs, signed a Letter of Intent, whereby Sky Chefs proposed to acquire all of the voting stock of Ogden Aviation Food Services, Inc. (“proposed acquisition”). The proposed acquisition included Ogden’s entire United States airline catering business and eight catering kitchens. One of these catering kitchens was located at the McCarran International Airport, Las Vegas, Nevada. 11. After being advised by Commission staff of potential competitive issues and concerns in connection with the proposed acquisition of all of Ogden’s in-flight catering business and kitchens, respondents and Ogden modified their original proposal to exclude Ogden’s Las Vegas in-flight catering business and kitchen. Under the modified agreement, SCIS would acquire the remainder of Ogden’s catering business and kitchens. 12. On May 22, 1998, Ogden entered into an agreement to sell the Las Vegas in-flight catering business and kitchen to Dobbs International Services, Inc. D. TRADE AND COMMERCE 13. The relevant product market in which to analyze the effects of Sky Chefs’ proposed acquisition of Ogden’s airline catering kitchens is the sale of in-flight catering services to airlines. 14. As used herein, in-flight catering services includes the preparation of meals, stocking of beverage carts, delivery of meals and carts to the aircraft, the loading of the galley, the unloading of incoming carts, utensils and trash, and cleaning and storage of carts and utensils. 15. The relevant geographic market in which to analyze the effects of Sky Chef’s proposed acquisition is the McCarran International Airport, Las Vegas, Nevada. 16. Entry into the relevant market would not be timely, likely, or sufficient to prevent anticompetitive effects for the following reasons, among others. Entry requires a significant investment of several million dollars. A substantial portion of the investment would not be recoverable if the entrant failed to achieve the minimum viable scale of operation. It would be very difficult for an entrant in airline catering at McCarran Airport to reach a viable scale of operation. To be viable, an entrant would need to capture a large share of the catering business in this market, and some of that business is committed to the incumbents through multiple year contracts. E. MARKET STRUCTURE 17. Ogden has an in-flight catering kitchen located at McCarran International Airport in Las Vegas, Nevada, that provides in-flight catering services to airlines at McCarran. 18. Sky Chefs has an in-flight catering kitchen located at McCarran International Airport in Las Vegas, Nevada, that provides in-flight catering services to airlines at McCarran. 19. The market for in-flight catering at McCarran International Airport is highly concentrated. Sky Chefs and Ogden are the only two firms that sell in-flight catering services to airlines departing or landing at Las Vegas’ McCarran Airport. The acquisition, as originally proposed, would leave Sky Chefs with a monopoly of in-flight catering services at McCarran Airport. The proposed acquisition, as modified, would result in no change in market concentration. F. EFFECTS OF THE PROPOSED ACQUISITION 20. The proposed acquisition, as originally proposed and if consummated, would likely have led to a substantial lessening of competition in the McCarran Airport in-flight catering market in the following ways, among others:
each of which would increase the likelihood that the price of in-flight catering services would increase and the quality of in-flight catering services would decline. G. VIOLATIONS CHARGED 21. The acquisition of the voting stock of the Ogden entities that operate in-flight catering kitchens by Sky Chefs, if consummated as originally proposed, would have violated Section 5 of the Federal Trade Commission Act, as amended, 15 U.S.C. § 45, and Section 7 of the Clayton Act, as amended, 15 U.S.C. § 18. WHEREFORE, THE PREMISES CONSIDERED, the Federal Trade Commission on this seventeenth day of September, 1998, issues its complaint against said Respondents. By the Commission. Seal Donald S. Clark |