Jet Airways-Etihad deal gets Singapore competition watchdog clearance

Jet Airways
Singapore, Nov 9: Clearing last of its regulatory hurdles, Jet Airways' commercial alliance with Abu Dhabi-based Etihad, including a Rs 2,060-crore stake sale, has received approval from the Competition Commission of Singapore.

While giving its long-pending clearance, Singapore's fair trade watchdog has ruled that the alliance "by its nature" has potential to adversely impact competition in the country, but "on the balance" the efficiencies from the deal outweighs the anti-competitive effect.

Over a year after the deal being announced in April 2013, the Singapore regulator announced in June this year that it has launched a public scrutiny of Jet-Etihad alliance to probe any possible violation of competition laws in the country.

The deal, which involved purchase of a 24 per cent stake in Naresh Goyal-led Jet for about Rs 2,060 crore by Etihad along with other tie-ups, went through turbulent times for months after being announced.

The deal finally got consummated late last year after clearance by various Indian regulators including fair trade watchdog CCI (Competition Commission of India) and capital markets regulator Sebi.

However, the deal came under scanner of the Competition Commission of Singapore (CCS), as the alliance "relates to the provision of international air passenger transport services (and associated support services), with a specific focus on the Singapore origin and destination city pairs".

After a public scrutiny and pursuant to submissions made by various stakeholders on filings made by the two carriers, CCS has now given its go-ahead to the deal.

Incidentally, the CCS approval comes at a time when Jet Airways has reported a quarterly net profit on stand-alone basis for the first time since 2012, helped by a one-time income from sale of its loyalty programme to Etihad.

On consolidated basis also, Jet has managed to narrow its losses by about 96 per cent to Rs 43 crore in the quarter ended September 30, as against a whopping net loss of Rs 999 crore in the year-ago period.

Announcing its clearance, CCS said the alliance involves Jet and Etihad cooperating on route and schedule coordination, pricing, distribution and marketing, among other things.

CCS said that it examined the alliance in view of the markets for provision of international scheduled air passenger services and air freight services on the affected Singapore origin and destination city pairs.

"After reviewing submissions provided by the Parties and various stakeholders, CCS finds that the Proposed Commercial Alliance will, by its nature, have the object of preventing, restricting or distorting competition within Singapore.

"However, given that the Proposed Commercial Alliance has minimal adverse impact on competition in the Relevant Markets, CCS is satisfied that, on the balance, the efficiencies accrued from the Proposed Commercial Alliance outweighs the anti-competitive effect of the Proposed Commercial Alliance and therefore the Proposed Commercial Alliance is excluded from section 34 of the Act," it said in its 28-page order.

Under Singapore competition laws, "an agreement will fall within the scope of Section 34 prohibition if it has as its object or effect the appreciable prevention, restriction or distortion of competition."

The decision to clear the deal was conveyed to Jet and Etihad on October 16, but it has been made public now after removing confidential information about the alliance.

Justifying its clearance, CCS said benefits that outweigh anti-competitive effect of this deal include "economic efficiencies achieved through joint operations and sharing of resources, as well as an expansion of Jet's existing network which will enable it to compete in the market segment of intercontinental travel and Europe-Singapore travel."

CCS is a statutory body in Singapore and it is mandated to investigate alleged anti-competitive activities, determine if such activities infringe the Act and impose suitable remedies, directions and financial penalties.

Abu Dhabi-based Etihad is the national airline of the United Arab Emirates and it operates to over 85 passenger and cargo destinations in over 50 countries.

Jet is a leading airline in India, operating to over 50 domestic and 20 international destinations. Jet has initiated a major restructuring including significant cost-cutting measures to attain profitability, while it has also begun tapping synergies from Etihad deal.

Struggling under high expenses and adverse operating conditions, Jet had posted its highest-ever annual loss of Rs 4,129 crore in the fiscal year ended March 31, 2014.

Forced to take tough measures, Jet has adopted a three-year business plan, which includes cleaning up of balance sheet, pruning of over-valued assets, cost restructuring and changes in service and fleet plans.

These decisions, as also the appointment of Australian national Cramer Ball as new CEO of Jet, were taken at a board meeting on May 27, which was attended for the first time by representatives of Etihad Airways.

Etihad's investments in Jet, totalling USD 750 million, comprises Rs 2,057.66 crore (USD 380 million) for a 24 per cent stake in the company, USD 70 million towards purchase of three slots at London Heathrow airport, USD 150 million to secure a 50.1 per cent stake in the JetPrivilege Frequent Flyer Programme and USD 150 million through HSBC.

Etihad has come in as "a long-term strategic investor and committed to supporting Jet as it re-engineers its business to achieve sustainable profitability."

After months of scrutiny, Indian capital markets regulator Sebi had also ruled in May this year that Etihad does not have to make an open offer for Jet shareholders pursuant to the Rs 2,060 crore deal.

Sebi's long-running probe had centred on the contention whether Etihad was getting control despite purchasing only 24 per cent stake. After looking into various aspects, Sebi finally ruled that Etihad "has not acquired control over Jet".

The deal was incidentally restructured last year to address various "control" related and other concerns raised by Sebi and the CCI.


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