The Competition Commission of India (CCI) approved the proposed combination between Jet Airways (India) Limited and Etihad Airways PJSC on 12th November 2013, and held that the said merger does not have any Appreciable Adverse Effect on Competition (AAEC). The ruling becomes important because Etihad’s investment was the first Foreign Direct Investment (FDI) by a foreign airline in an Indian carrier, after change in the government of India’s FDI policy.

Facts of the case were Etihad proposed an acquisition of 24 per cent equity stake in Jet Airways somewhere in April 2013 and the parties had executed a Shareholders Agreement, Commercial Co-operation Agreement and the Investment Agreement as transaction documents. A notice was filed on 1st May, 2013 with the CCI under Section 6(2) of the Competition Act, 2002 proposing the said combination.

CCI made some key observations related to the definition of Relevant Market (RM) in the said case. Some of the key factors considered by the commission were India’s policy on international air cargo transportation, time and price sensitive consumers in terms of business days and holidays, point of Origin and point of Destination (O&D) pair approach to determine substitutability between direct and indirect flights, and indirect flights offered by competitor. The CCI also said that from passengers’ side each O&D pair constituted a separate market. In line with the analysis, it defined RM as first, O&D from, or ending in nine cities in India, to and from UAE and second, O&D from, or ending in India, to and from international destinations on the overlapping routes of Jet and Etihad.

On AAEC, CCI stressed upon the relevancy of trans-boundary competition as routes were international. There were 38 routes to, and from India as far as Etihad and Jet were concerned with one competitor at least on each such route. The two airlines had a combined share of more than 50 per cent except on seven destinations. Even for the said exception, three routes had a share of more than 50 per cent. Therefore the commission observed that a post-transaction change in the market share has taken place, rather than altering the competitive dynamics. Even though CCI elaborated on the O&D pairs, it considered network effects of the airlines as well of the proposed combination. It observed that the network effects, including hubs, increased access to gates, slots and other infrastructure interfaces are stronger when the complementary nature of routes of Jet and Etihad are concerned. The competition was observed to be increasing among systems rather than on point to point O&D pairs. Hence, the CCI concluded, high market shares of Etihad (Abu Dhabi) and Jet (India) do not lack competition in their respective hubs. Another important aspect considered by the Commission was financial crisis faced by Jet and impact of such equity infusion on its survival. It held that such combination would not allow Jet to compete effectively in the international market. But also result in increase in competition through enhancement and expansion of services. It was postulated that the proposed combination may raise competition by opening route for other such mergers by relevant stakeholders.

The majority ruling approved the proposed combination based on the review of information submitted by the parties. It also came only after the merger got through Securities and Exchange Board of India, Cabinet Committee of Economic Affairs and the Foreign Investment Promotion Board. The parties had to file additional documents in line with CCI Regulations, 2011 and the approval came with a caveat that it was based on the information and details provided by the parties as on date. In case of any modifications, fresh approval would be granted.

Even though the said order does not make explicit reference to international pronouncements, the jurisprudence adopted by the CCI is similar to the one adopted by the European Commission (EC) in some of the cases. EC made a competition assessment in the context of mergers and operational arrangements between airlines in Europe, for example between British Airways and Iberia, and held that such mergers do not affect competition and the merged entity would continue to face competition from other entities in the market.

The majority ruling takes a coherent approach while following the steps in analysing AAEC and approving the said combination under section 31(1) of the Act. It puts the onus on parties for providing the information and reserves the right to further look into the same if some new material is put on record. Though the minority ruling orders an investigation into the case, it seems less convincing given that the majority reserved the right with itself for future investigation, and said that some information will only be available post-merger. The overall reasoning used by the majority sounds convincing to look into future horizontal and vertical combinations.