Competition law

Specific regulation

Do sector-specific or general competition rules apply to aviation?

The Malaysian Aviation Commission Act 2015 introduces sector-specific competition rules to the aviation market. The Malaysian Aviation Commission (MAVCOM) has since issued and published the Competition Guidelines, which is the collective term for the following:

  • Guidelines on Aviation Service Market Definition;
  • Guidelines on Anti-Competitive Agreements;
  • Guidelines on Abuse of Dominant Position;
  • Guidelines on Substantive Assessment of Mergers;
  • Guidelines on Notification and Application Procedure for an Anticipated Merger or a Merger;
  • Guidelines on the Determination of Financial Penalties; and
  • Guidelines on Leniency Regime.

 

Regulator

Is there a sector-specific regulator, or are competition rules applied by the general competition authority?

The MAVCOM is a sector-specific regulator for competition rules in respect of the aviation market. 

Market definition

How is the relevant market for the purposes of a competition assessment in the aviation sector defined by the competition authorities?

Under the Guidelines on Aviation Service Market Definition issued by the MAVCOM, the Hypothetical Monopolist Test is relevant for the purposes of assessing the aviation market. This test considers the service market and the geographic market.

The determination of the service market involves the identification and evaluation of the Focal Aviation Service. In so doing, the regulator considers whether a hypothetical monopolist of a service market for the Focal Aviation Service would be able to profitably raise the price of the service by a Small but Significant Non-transitory Increase in Price (SSNIP) to decide whether the Focal Aviation Service should be widened or otherwise. In addition, the regulator may also consider the demand-side substitution and the supply-side substitution. 

The determination of the geographic market involves the identification and evaluation of the focal area. In so doing, the regulator considers whether a hypothetical monopolist of a relevant service operating within that focal area would be able to profitably raise the price of the service by an SSNIP to decide whether the focal area should be widened or otherwise. In addition, the regulator also considers the demand-side substitution and the supply-side substitution.

Code-sharing and joint ventures

How have the competition authorities regulated code-sharing and air-carrier joint ventures?

Code-sharing and air-carrier joint ventures are regulated by the MAVCOM and the Competition Guidelines. Generally, the Malaysian Aviation Commission Act 2015 prohibits an agreement between enterprises that has the object or effect of significantly preventing, restricting or distorting competition in the market. The Guidelines on Anti-competitive Agreements expressly includes airline code-sharing agreements and partnership or joint venture agreements as agreements that could fall foul of the prohibition.

Assessing competitive effect

What are the main standards for assessing the competitive effect of a transaction?

To assess the competitive effect of a transaction, the main standard for assessment is whether the agreement has the object or effect of significantly preventing, restricting or distorting competition in any aviation service market. In assessing this, the regulator considers whether the agreement has the effect of:

  • fixing prices or other trading conditions;
  • sharing aviation service market or sources of supply;
  • limiting or controlling production, market outlets or market access, technical or technological development or investment; or
  • bid rigging.

 

Remedies

What types of remedies have been imposed to remedy concerns identified by the competition authorities?

Pending completion of the investigation and determination of infringement, the MAVCOM may issue the necessary directions as an interim remedy to address the concerns identified. For example, directions requiring the alleged infringing party to suspend the effect of the alleged prohibited agreement or to desist from any alleged infringing conduct.

In the event of a determination of infringement, the MAVCOM may require the infringement to cease immediately, specify appropriate steps to be taken by the infringing enterprise to remedy the infringement or impose a financial penalty not exceeding 10 per cent of the worldwide turnover of the enterprise during the period of infringement. In the event of refusal to comply, an application may be made to a court for a compliance order. Failure to comply with the compliance order constitutes contempt of court.

Financial support and state aid

Rules and principles

Are there sector-specific rules regulating direct or indirect financial support to companies by the government or government-controlled agencies or companies (state aid) in the aviation sector? Is state aid regulated generally?

There are sector-specific rules governing financial support (known as government subsidies in a local context). The Civil Aviation Authority of Malaysia Act 2017 establishes the Civil Aviation Authority of Malaysia Fund to capture, among other things, such funds as may be approved and provided to pay for the expenses of matters under the purview of the Civil Aviation Authority of Malaysia (CAAM). The Malaysian Aviation Commission Act 2015 provides for the establishment of the Aviation Commission Fund to capture, among other things, such funds as may be approved and provided to pay for the expenses of matters under the purview of the Malaysian Aviation Commission. Financial support to operators serving the public service obligation routes is funded through the Public Service Fund.

There is financial support through government or government-controlled agencies or companies in the sector, which are regulated through other general legislation.

What are the main principles of the state aid rules applicable to the aviation sector?

The sector-specific regulations are intended to regulate, in general, the nature of such funds and the manner in which such funds may be applied. There are no specific principles prescribed. 

Exemptions

Are there exemptions from the state aid rules or situations in which they do not apply?

There are no exemptions prescribed in the aviation-specific regulations. 

Clearance of state aid

Must clearance from the competition authorities be obtained before state aid may be granted? What are the main procedural steps for doing so?

The regulations do not require specific clearance to be obtained before financial support may be granted. The process for applying for financial support for the aviation sector is not publicly known.

Recovery of unlawful state aid

If no clearance is obtained, what procedures apply to recover unlawfully granted state aid?

The process for recovering unlawfully granted financial support for the aviation sector is not publicly known.

Law stated date

Correct on:

Give the date on which the above content is accurate.

26 June 2020.