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VISTARA- AIR INDIA MERGER- A COMPETITION LAW STUDY

Updated: Jun 24, 2023

[Anushaka Sharma is a penultimate year law student at Jindal Global Law School]


Introduction


The Tata Group has approached India's fair-trade regulator, the Competition Commission of India [‘CCI’], in an effort to get approval on a proposed merger between its full-service carriers Air India and Vistara. Tata Sons Pvt. Limited [‘TSPL’] and Singapore Airlines Limited are stakeholders in the business venture known as Tata SIA Airlines Ltd [‘TSAL’]. While TSPL owns 51% of the company, TSAL holds 49% of the shares. Vistara is the brand name under which TSAL functions. The intended combination involves the merging of Vistara with Air India Ltd., Air India being the surviving company, and the acquisition of shares in the resulting company by TSAL and TSPL. Air India would be the entity that would continue to exist after the merger. After the transaction is finalised, TSPL will own 51% of the stock of the amalgamated company and will continue to maintain control over Air India and its subsidiaries. On the other hand, TSAL would hold a minority position in the corporation, amounting to 25.1% of the total equity. The author aims to determine whether or not the proposed merger shall have an appreciable adverse effect [‘AAEC’] on the existing level of competition in India and the possible implication of the same on the aviation industry.


Issues to be considered


The proposed merger will be examined by the CCI, which will decide whether or not the same is likely to have caused AAEC in India. The CCI will take a number of criteria into consideration, some of which include the market share of the merged firm, the degree to which relevant markets are concentrated, and the impact on consumers and suppliers.


The merger of Vistara and Air India might lead to the emergence of a dominating player in the Indian aviation sector, which would be detrimental to the health of the industry overall. The merged firm could have a sizeable portion of the market and might be in a position to control pricing or the amount of product available in the markets that are important. This might result in increased pricing and fewer options for customers, as well as less business prospects for suppliers and other businesses in the same industry.


The effect on competition will be contingent on a number of factors, such as the structure of the market, the nature of the competitive landscape, and the capacity of other companies to either enter the market or extend their operations. The CCI will conduct an analysis of these elements to assess whether or not the merger is likely to have an appreciable adverse effect on competition. Hence, the CCI will carefully assess the proposal to make certain that it does not cause any harm to consumers or suppliers and that competition is maintained at a healthy level within the industry.


Go ahead? Possible implications of the merger


Sections 5 and 6 of the Competition Act of 2002 [‘the Act’] as well as notifications issued by the Ministry of Corporate Affairs, Government of India, and, the Competition Commission of India (Procedure In Regard To The Transaction Of Business Relating To Combinations) Regulations, 2011 [‘Combination Regulations’] govern the merger control regime in India. Thirty calendar days following the transaction's notification, the CCI is mandated to offer a prima facie opinion on whether or not the transaction is likely to produce an appreciable adverse effect on competition within the relevant market in India. The transaction will be given the green light for approval by the CCI if it is determined that there is a low probability that the same would result in an AAEC. If the CCI doesn't rule on the combination within 210 days (counting only the days that matter for the purposes of the Combination Regulations), it is deemed as approved.


The CCI, when inquiring into the potential of a proposed combination to lead to AAEC within the relevant market for such combinations, refers to a myriad of factors, as enumerated under Section 20 (4) of the Act. These factors require an assessment into the competition through imports in the market, entry barriers in the market, the level of combinations in the market, degree of countervailing power in the market, probability of such combination leading to a significant and sustainable profit increment, effective competition that the market can sustain, availability of substitutes in the market, individual market shares of the persons or enterprises proposing a combination and the market share of such combination, effect of the combination on the competition in the market, if the combination that is likely to have AAEC is capable of economic development and, a comparison between the benefits and adverse effects of the proposed combination.


It is pertinent to note that the parties have defined four distinct relevant markets for the convenience of the Commission. The first segment pertains to the domestic passenger air transportation services within the country, the second segment relates to the international passenger air transportation services, the third segment covers the market for air cargo transportation services within India, and the fourth segment deals with the provision of charter flight services within the country.


In addition to the four distinct segments of relevant markets identified for the purpose of Commission’s assessment, two vertical relationships have also been delineated. The first relationship involves the market for ground handling services at four airports in India, namely Bengaluru, Delhi, Hyderabad, and Thiruvananthapuram, which is upstream, and the market for passenger air transport services at these airports, which is downstream. The second vertical relationship pertains to the market for in-flight catering services in India, which is upstream, and the market for passenger air transport services in India, which is downstream. By identifying these vertical relationships, it becomes possible for CCI to better understand and regulate the competition dynamics within the aviation industry. This can help to prevent anti-competitive practices and promote fair competition, ultimately benefiting both consumers and businesses alike.


Further, the CCI shall also look at Section 3 of the Act. When evaluating AAEC in accordance with Sections 3 and 19 of the Act, the following considerations must be made by the regulator -

  • Air India and Vistara have nonstop departure seats of 8.2 million and 6.3 million, respectively, out of the total 86.3 million nonstop departing domestic and international seats in India, foreign and Indian carriers included. With a combined number of 14.5 million, Vistara and Air India, as a combination, would hold a 16.8 percent market share, which is only second to the largest Indian operator, Indigo. With the addition of AirAsia India and Air India Express, the Group would control one-fifth of India's total seat capacity. More than seven out of every ten seats in India would be controlled by IndiGo and the Air India Group.

  • Looking at major metro-level routes, which Air India has stated is its top priority going forward, reveals a different picture. Air India's capacity share between these cities would increase by 140%, from 2.0 million to 4.8 million, if routes were analysed between Delhi, Mumbai, Bengaluru, Hyderabad, Chennai, and Kolkata (e.g., the five cities from Delhi, the five cities from Mumbai, etc.). Depending on how Air India plans to use the slots it has acquired, including whether or not it will increase its international operations, Vistara will help Air India expand its metro route presence at Mumbai. Indeed, Vistara would be a crucial way for Air India to add more capacity, especially in the extremely crowded cities of Delhi and Mumbai.


THE WAY AHEAD


The proviso to Section 3(3) of the Act provides that an agreement that is entered into by way of a joint venture is regarded to promote the efficiency in the production, supply, distribution, acquisition, and control of goods, as well as the provision of services in general. This is the case because such a joint venture is deemed to boost the effectiveness of the market. As a result, there is no basis for presuming that a transaction will have a negative impact on market competition, and, the burden of proof for establishing that a particular joint venture has or is likely to have AAEC rests with the person making the allegation. Because of this, the outcome of the Air India and Vistara merger will depend not only on the influence of the merger itself but also on a number of other factors as well.


The 2007 merger of Air India and Indian Airlines had appeared to be an optimistic turn in the aviation history of India. However, the deal between the two airlines eventually foundered. One of the most prominent reasons for this failed combination was severe employee agitation, a direct outcome of poor employee integration between the two airlines. Citing pay disparity between employees, a number of strikes by the employees further blurred the airline’s future, when combined with its financial deterioration since the merger. An evident downfall of business for the Air India airlines led to other market players swooping in to acquire the neglected market share. The Air India - Indian Airlines merger stands as a lesson in the gravity of successful employee integration in a merger between two entities.


As per a statement made by the present CEO of Vistara, Mr. Vinod Khanna, over 5000 employees would be absorbed by Air India, once the combination in consideration is afoot. This makes employee integration between these two entities a key consideration that can be taken into the purview of the regulator’s assessment. Vistara is essentially known to be a premium full service airline and an unvarying preference by air passengers owing to its multiple cabin classes and comprehensive quality maintenance whereas Air India has been grappling with witnessing a profitable financial year for itself, in recent times. While currently, both Air India and Vistara stand to gain tremendously from the probable market synergy that is achievable from the proposed combination, the differences between their service standards and cabin classes will be instrumental in devising a sound strategy for a successful cultural integration between the two airlines. Thus, the outcome of the Air India and Vistara merger will depend not only on the influence of the merger itself but also on how the merged entity ensures a long-term viability in the aviation market.


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