The State Administration for Market Regulation (SAMR) approved the merger control filing with restrictive conditions for the case regarding the establishment of a joint venture by Shanghai Airport (Group) Co, Ltd (AVINEX) and Eastern Air Logistics Co, Ltd (EAL).

Upon review, the SAMR found that the newly established joint venture has a dominant market position in the Shanghai Pudong airport cargo terminal service market. Meanwhile, the SAMR also identified a common interest relationship among AVINEX, EAL and the newly established joint venture, with the increased likelihood of further price synergies and less elastic demand for airport cargo terminal services from downstream customers. As a result, the newly established joint venture may take advantage of its control over the market to reduce service quality and increase service prices, thus excluding and limiting competition in the Shanghai Pudong airport cargo terminal service market.

Further, during its review, the SAMR also drew attention to three potential profit-making possibilities of EAL's beneficial owner, China Eastern Airlines Co, Ltd (CEA):

  • It may raise the costs of CEA's competitors through the establishment of the joint venture and charge unreasonably high prices to its competitors.
  • It may reduce the quality of services provided to competitors of CEA and differentiate in terms of service timeliness.
  • It will limit the amount of airport cargo terminal services provided to competitors of CEA to exclude and restrict competition in the air cargo service market.

In view of the above conclusion, AVINEX and EAL submitted an additional restrictive commitment proposal, which was eventually approved by the SAMR. The commitment statement indicates that, following the establishment of the joint venture:

  • no competitively sensitive information must be exchanged and no monopolistic acts prohibited by the AML must be entered into or implemented;
  • personnel must not hold part-time jobs;
  • shareholder rights must be restricted;
  • a non-competition period must be imposed;
  • office premises and information systems must be kept separate; and
  • users' permission of office systems must be restricted.

To ensure independent operation of the joint venture, no competitively sensitive information must be exchanged directly or indirectly among AVINEX, EAL and the joint venture.

AVINEX and EAL also undertake to continue to perform the service contract already signed with the relevant customers for the cargo terminal at Pudong Airport. Upon the expiration of the contract, should the relevant customer wish to renew the contract, AVINEX and EAL must not refuse, and the conditions of the renewal must not be lower than the service level before this transaction. The commitment will be valid for five years. Moreover, the commitment covers such aspects as that:

under the same conditions, no differential treatment shall be applied to downstream customers in terms of price, quantity and other trading conditions, no unreasonably high prices shall be applied, and the total amount of services provided by the cargo terminal at EAL shall not be unreasonably limited.

For further information on this topic please contact Hao Zhan or Ying Song at AnJie Law Firm by telephone (+86 10 8567 5988) or email ([email protected] or [email protected]). The AnJie Law Firm website can be accessed at www.anjielaw.com.