European Commission relieves Royal Mail Group from excessive pension costs, provides restructuring aid through debt reduction of about £1.09B to ensure sustainable future for group

Kendall Sinclair

BRUSSELS , March 21, 2012 (press release) – The European Commission has approved UK plans to relieve the Royal Mail Group (RMG) from excessive pension costs relating to its past monopoly position and to provide RMG with restructuring aid consisting of a debt reduction of ₤1089 million (around €1311 million). RMG's revised restructuring plan will ensure a sustainable future for the group in its twofold function of providing universal postal services and of granting access to its delivery network to other providers in the UK. Moreover, the plan negotiated with the Commission includes appropriate measures to minimise distortions of competition induced by the aid.

Commission Vice President in charge of competition policy Joaquín Almunia said: “In order to achieve a level playing field in postal markets, it is crucial that incumbent operators neither enjoy undue advantages, nor suffer from structural disadvantages in comparison with competitors. The relief of excessive pension costs and the restructuring aid approved today will help ensure this balance for Royal Mail and its competitors."

The Commission's investigation found that RMG was liable for higher pension costs than its private competitors, as a consequence of legacy costs originating in the pre-liberalisation period, when RMG held a legal monopoly. The Commission therefore authorised the pension measure, under the condition that it only relieves RMG of costs which are in excess of the level of pension payments made by comparable companies in the UK. This will ensure that the pension relief does not place RMG in a better position than competitors. This decision is in line with the Commission's conclusions in previous postal cases (e.g. French Post, see IP/07/1465, BPost, see MEMO/12/38 and Deutsche Post, see MEMO/12/37).

The UK also plans to grant RMG a debt reduction amounting to £1 089 million in the context of a broad restructuring plan, aimed at ensuring the sustained viability of RMG. The revised restructuring plan, taking into account the Commission's concerns, will be implemented over 2010-1015. It foresees an improved business model for RMG which will better address its weaknesses and ensure its future viability. It builds on the significant restructuring that Royal Mail has already undertaken since 2002 to modernise its business and drive costs down. The plan includes operational modernisation, the offset of the remaining pension deficit of the RMG pension plan, which falls outside the legacy costs relief, and a structural reduction of mail centres. RMG will finance 50% of the restructuring costs through several measures, such as asset divestments.

The Commission therefore concluded that RMG's restructuring plan is in line with the 2004 EU Rescue and Restructuring Guidelines (see IP/04/856 and MEMO/04/172).

Background

RMG, 100% state-owned through the Royal Mail Holdings, provides the universal postal service in the UK and had a legal monopoly over certain basic letter services until the end of 2005 when the postal markets in the UK were fully liberalised.

RMG is the only licensee in the UK postal market with universal service obligations and is required by its license to allow customers and other postal companies access to its national network on a non-discriminatory basis.

In July 2011, the Commission opened an investigation on the proposed measures in favour of Royal Mail Group (see IP/11/936). Today's decision closes this investigation.

The non-confidential version of the decision will be made available under the case number SA.31479 in the State Aid Register on the DG Competition website once any confidentiality issues have been resolved. New publications of state aid decisions on the internet and in the Official Journal are listed in the State Aid Weekly e-News.

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