CCI introduces Leniency “Plus” regime in India- Will it suffice?
CCI directs investigation into probable abuse of dominance by GMR at Rajiv Gandhi International Airport of Hyderabad
By way of order dated 03.10.2019, the Competition Commission of India (“CCI/Commission”) has directed the Director General (“DG”) to conduct an investigation to ascertain whether GMR Hyderabad International Airport Ltd (“GMR’) has abused its dominant position by not renewing the License Agreement of Air Works India (Engineering) Pvt. Ltd (“Informant”) for providing Line Maintenance Services at Rajiv Gandhi International Airport of Hyderabad.
Background
GMR is the sole concessionaire operating at Rajiv Gandhi International Airport Hyderabad since 20.12.2004 due to a joint sector agreement (“Concessionaire Agreement”)[1] entered with Government of India[2] for Development, Construction, Operation and Maintenance of the same. GMR Aero Technic Limited (“GAT”) is a wholly owned subsidiary of GMR Aerospace Engineering Ltd, which in turn is a wholly owned subsidiary of GMR, and therefore, together constitute one group. GAT and informant both provide similar Maintenance, Repair and Overhaul (“MRO’) services of aircraft to airlines and general aviation- Line Maintenance Services and Base Maintenance Services.
Base Maintenance Services include heavy periodic maintenance on the aircrafts for airline operators whereas Line Maintenance Services includes activities like trouble shooting, defect rectification, component replacement, schedule maintenance and/or checks, minor repairs and modifications and visual inspections. The latter is undertaken during the time between landing and take-off of any aircraft to declare it airworthy and fit for departure. The service provider of Line Maintenance Services is required to be present within the premises of the Airport.
As the service provider of Line Maintenance Services and to be present within the Airport premises, the informant executed a license agreement dated 20.12.2011 with GMR for a period of 3 years. The informant was given an area of 96.04 square meters and in return GMR was charging license fee, common area maintenance fee and utility charges. Towards the license, the informant had also paid an interest free security deposit of INR 5, 88,342/- and a Royalty Deposit of INR 6, 24,828/- (Total- INR 12, 13,170/-). Moreover, in view of the 4% annual escalation clause in the license agreement, as of March 2019, the informant has paid a monthly license fee of INR 1, 26, 184/-
On expiry of the license agreement, a subsequent agreement dated 28.11.2014 was executed between GMR and the informant which entitled the informant to provide Line Maintenance Services to the aircrafts until 22.03.2019. On 25.02.2019, the informant requested GMR to renew the agreement for five years, to which, GMR replied that it will be needing the space for on-going expansion works at Rajiv Gandhi International Airport Hyderabad and, therefore, will not be extending the agreement. Despite various efforts, including a Writ Petition[3] before the High Court of Telangana, the informant was unable to get the license renewed.
Allegation
The informant alleged that GMR has a dominant position in the ‘market for Line Maintenance Services at Rajiv Gandhi International Airport at Hyderabad’ and has abused its dominant position. It was alleged that GMR had resorted to sending e-mails to the customers of the informant to avail the Line Maintenance Services of an alternative service provider. Further alleged that GMR had asked the informant vide email dated 30.07.2019 to surrender the vehicle licenses to its Airside office. The informant also informed the CCI about GMR and GAT poaching the informant’s technically skilled employees. The allegations also pointed towards GMR assisting its subsidiary GAT as the balance sheets showed that GAT was under financial hardships and the termination of license was a way of protecting/promoting GAT.
The allegations pertained to:
- Section4(2)(c)- Denial of market access- by not renewing the license and disallowing the informant to operate within the airport premises
- Section 4(2) (e)- Leveraging its dominant position in the upstream market and restricting provision of services in the downstream market
- Section 4(2)(b)(i)- Limiting and restricting the provision of services by Informant of Line Maintenance Services
- Section 4(2)(a)(i)- Creating a monopolistic environment where GAT will operate independently
Commission’s prima facie Analysis
Relevant Market
The Commission observed that ‘provisioning of Line Maintenance Services’ is the downstream market where the alleged abuse took place, however, in order to analyze GMR’s position the upstream market for provision of access to airport facilities/premises’ is relevant. The Commission noted that since the case pertains to denial of market access as well as leveraging, two markets were required to be defined. The upstream market was taken as ‘market for provision of access to airport facilities/premises at Rajiv Gandhi International Airport at Hyderabad.
As regards the downstream market, the Commission observed that it has to be delineated keeping in mind the allegations of abuse. CCI noted that GMR has exclusive right to develop, design finance, construct, commission, maintain, operate and manage Rajiv Gandhi International Airport at Hyderabad. On the other hand, the informant is a provider of MRO services to the airlines and the abuse was specifically alleged to have taken place in the Line Maintenance Services market. The Commission observed that Line Maintenance Services and Base Maintenance Services were different product market based on the difference of duration of time, time consumption, labor/infrastructure requirement, frequency of providing these services etc. Therefore, the downstream market was defined as ‘market for provision of Line Maintenance Services at Rahul Gandhi International Airport at Hyderabad’.
Dominance
CCI noted that the monopoly or dominant position of GMR was attributable to the Concessionaire Agreement dated 20.12.2004 whereby the Government of India granted GMR the exclusive right to carry out the development, design, financing, construction, commissioning, maintenance, operation and management of Rajiv Gandhi International Airport at Hyderabad for a period of 30 years. This also implied dominance in terms of providing access to the facilities/premises at Rajiv Gandhi International Airport at Hyderabad to various third party service providers who wished to provide their services at the airport.
Therefore, GMR was held to be dominant in the market for provision of access to airport facilities/premises at Rajiv Gandhi International Airport of Hyderabad.
Abuse of Dominance
The Commission observed that all the allegations rooted from a single act of not extending the License Agreement with the informant by GMR and therefore disallowing its presence at Rajiv Gandhi International Airport of Hyderabad.
Although the Commission acknowledged the freedom of an entity to choose its trading partners and the exercise of such freedom not being per se sufficient to conclude contravention, however, the Commission focused on 3 criteria’s where such refusal to deal will amount to abuse of dominant position: (i) refused input is indispensable for an entity in order to compete on the downstream market; (ii) refusal shall most likely eliminate competition on the downstream market; and (iii) refusal shall most likely damage consumers.
Indispensability of Input
The Commission observed that access to the airport is an essential facility to provide the Line Maintenance Services which require physical presence of the service provider and its infrastructural facility at the airport premises. CCI noted that the essential facility – airport premises, is under the control of GMR and a service provider of Line Maintenance Services cannot operate without being present in the said premises. It is not possible for the service provider to operate from outside the airport as the service is required between landing and take-off of the aircraft. Moreover, the competition in the downstream market is low since apart from the informant, the only other dedicated player is GAT. Therefore, Rajiv Gandhi International Airport of Hyderabad was considered as an essential facility for providing services in the downstream market.
Eliminating competition in the downstream market
CCI noted that informant and GAT are the significant players in the downstream market which pose competitive constraints on each other. Moreover, since being physically present is sine qua non, the non-renewal of License Agreement amounted to the exclusion of the Informant form the downstream market, which will benefit GMR’ group entity- GAT.
The Commission also acknowledged GMR’s attempt of encouraging the Informant’s customer- Jazeera Airways to choose and alternative vendor, disabling electricity supply at informant’s location, and also attempting to poach the technically skilled employees of the informant.
The Commission observed that if Line Maintenance Services are not provided by the informant, this will benefit GAT, being the largest and seemingly the only player in the downstream market apart from the informant and some marginal other players.
Therefore, CCI noted that this conduct of GMR suggested denial of market access coupled with exclusionary motive by GMR to favor its own group entity- GAT.
Damage to consumers
CCI observed that GMR had the potential to limit and restrict the provision of Line Maintenance Services and the technical development relating to provisioning of such services to the prejudice of consumers within the meaning of Section 4(2)(b) and therefore is likely to damage consumers.
The Commission observed that in the event that the informant is excluded from the downstream market, the entity providing the Line Maintenance Service in the downstream market (GAT) would virtually be the same as the dominant one in the upstream market (GMR), being part of one group. In this scenario, there will be an absence of any effective competitive or regulatory constraint to put a check on such entity in respect of either price or quality of services in the downstream market.
Accordingly, the CCI directed the Director General to conduct an investigation into the conduct of GMR, after forming a prima facie opinion that it appears to abuse of dominant position in the relevant market.
COMMENT: The CCI Order under section 26(1) of the Act is reported to have been stayed by the Telangana High Court vide its interm order dated 17 October 2019 , as reported in a section of local media . The media news can be viewed here.
[1] Valid for 30 years, extendable for another 30 years at the option of GMR
[2] Through the Secretary, Ministry of Civil Aviation, New Delhi
[3] W.P (C) No. 13298/2019
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