Aviation M&As face tough test

NEW DELHI: Consolidation in the airline business has attracted the attention of the ministry of corporate affairs. The ministry has rejected a civil aviation ministry move to facilitate easier disclosure norms for airline mergers which result in substantial market shares. The civil aviation ministry had suggested that the competition regulator be intimated in advance only about mergers that result in 50% market share.

The decision has significant implications for airlines as the competition regulator is closely watching the Kingfisher-Air Deccan combine and the Jet Airways-Air Sahara team, since both have significant market shares. While they are way short of the 50% mark, both are in a position to influence market dynamics, it is felt. The Kingfisher-Deccan combine commands slightly over 30% of the market, while Jet-Sahara has about 28%.

The other major player is Indian, with a 22% market share. With the merger of Indian with Air-India, the combine’s share would also go up. All other airlines are relatively small. So, any further consolidation has the potential to create monopoly.

The corporate affairs ministry plans to apply a turnover-asset criterion to scrutinise airline mergers. The aviation ministry had suggested that a less than 50% share should not be construed as a dominant position and therefore, the need for Competition Commission (CCI) nod for such deals would be unnecessary.

The corporate affairs ministry , which is finalising amendments to the competition law, feels that a 50% share may not determine abuse of dominance, particularly if other players are small and numerous. Similarly, a company with more than 50% share could face stiff competition from smaller rivals if they have significant chunks of the market.

As per proposed amendments, a combined entity with more than Rs 1,000 crore assets or Rs 3,000 crore turnover in India or more than $500 million assets or $1,500 million turnover in India and abroad taken together needs to notify the commission. In the case of a group acquiring an enterprise, the threshold is assets over Rs 4,000 crore or turnover more than Rs 12,000 crore in India or assets over $2 billion or turnover more than $6 billion in India and abroad taken together.This criterion exists in the present law for voluntary notification. The proposal is to make it mandatory.