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The Competition Commission of India (CCI) has given its nod to the Jet Airways-Etihad deal, paving the way for the Abu Dhabi-based airline to acquire 24 per cent in the Indian carrier. In its order issued on Tuesday, CCI ruled the proposed combination “is not likely to have appreciable adverse effect on competition in India”.
The majority order, passed by CCI chairman Ashok Chawla and four members, said the approval can be revoked if information provided by Jet and Etihad is found to be incorrect at any time. One CCI member, Anurag Goel, dissented with the majority view.
The anti-trust body’s clearance means that both sides can go ahead with the transaction. According to sources, Etihad's investment in Jet Airways is likely to be completed in the next 15 days. Jet Airways’ chairman Naresh Goyal will sell six per cent stake in the airline in an offer-for-sale to bring down his shareholding to 51 per cent according to the Securities and Exchange Board of India’s (Sebi) order. The stake sale to Etihad will happen subsequent to that sale.
The Rs 2,060-crore deal and the increase in traffic rights to Abu Dhabi had generated a lot of controversy and political opposition, leading to litigation.
In its ruling, the CCI studied the impact of alliance on competition between nine Indian cities and Abu Dhabi, and also looked at the India-United Arab Emirates (UAE) market (taking Dubai and Sharjah as substitute airports to Abu Dhabi). The competition watchdog also studied the alliance’s impact on India-US market and 38 other routes to and from India on which Jet and Etihad face competition from other airlines. The CCI observed that cancellation of Jet's existing code-share pacts as part of the deal will not lead to concentration of market share.
The CCI tried to allay Air India's concerns, saying the government carrier has 32 per cent market share on Mumbai-Abu Dhabi and 24 per cent on Delhi-Abu Dhabi routes, compared to Jet-Etihad’s 50 per cent. It said looking at Dubai as a substitute airport increases the catchment area and could reduce the chances of the alliance exploiting market power.
Similarly, the commission said there are 38 routes to/from India to other destinations where Etihad and Jet fly. Of these, only on seven routes does Jet Etihad have a combined market share of more than 50 per cent. On three of these seven routes, either Jet or Etihad has a market share of less than five per cent. On the India-US market, too, the alliance has a market share of only 10.4 per cent; the current low market share and the open sky policy between India and the US do not raise competition concerns, the CCI noted. The government had enhanced traffic rights to Abu Dhabi in April, increasing the weekly seats from 13,000 to 50,000. As such, the two airlines’ market share on the route is estimated to increase from 17.06 per cent to 22 per cent and this does not portend the possibility of exploitation of market power, it noted.
Moreover, the CCI also recognises the air services agreements (traffic right agreements) for other airlines are not likely to be static and some of the other airlines including European ones, have the flexibility of increasing fleet capacity as they are governed by open-sky or similar agreements. Secondly, the increase in air services agreement for Jet and Etihad has to be implemented in phases.
However, according to CCI member Goel, the deal would cause "appreciable adverse effects" in the international air passenger transportation market, including in the India-US and India-Europe sectors, Mumbai/Delhi-London sectors and air passenger transportation services on five origin and destination routes namely Mumbai-Abu Dhabi, Delhi-Abu Dhabi, Mumbai-Dubai, Delhi-Dubai, and Kochi-Sharjah in the India-UAE sector.
“I am of the prima-facie opinion that the proposed combination is likely to cause an appreciable adverse effect on competition within the market of international air passenger transportation from and to India," Goel said in the order, recommending an investigation. According to him, show cause notices should be served on the parties seeking their response within 30 days as to why investigation in respect of the proposed deal should not be conducted.
