On September 14, 2022, the Second Department of Anti monopoly Law Enforcement of the State Administration of Market Supervision and Administration announced the "Notice of the State Administration of Market Supervision and Administration on the Decision of the State Administration of Market Supervision and Administration on Approving the Anti monopoly Review of the New Joint Venture Case between Shanghai Airport (Group) Co., Ltd. and Eastern Airlines Logistics Co., Ltd. with Additional Restrictive Conditions". The case has attracted considerable attention from the public. Because it is not only the first time that China's antitrust law enforcement authorities have imposed restrictive conditions on the merger and acquisition of two Chinese enterprises, but also the first case of conditional concentration of operators in the civil aviation cargo industry and the airport industry, which deserves the attention of state-owned enterprises, as well as civil aviation cargo, logistics, and airport related enterprises.

1、 For the first time, it complies with the requirements of "strengthening the fundamental position of competition policy" by attaching conditions to purely domestic inter enterprise transactions

Since the establishment of the General Administration in 2018, the 21 conditional approval or prohibition decisions announced before this transaction are all aimed at concentration transactions involving foreign enterprises or between purely foreign enterprises. Both parties to this transaction are Chinese enterprises and are state-owned enterprises: Shanghai Airport (Group) Co., Ltd. (hereinafter referred to as "Airport Group") is actually controlled by the Shanghai Municipal SASAC, while Eastern Airlines Logistics Co., Ltd. (hereinafter referred to as "Eastern Airlines Logistics") is a subsidiary of Eastern Airlines, and the actual controller is the SASAC of the State Council.

Generally speaking, antitrust lawyers and transaction lawyers have always been optimistic about the antitrust review of two purely state-owned enterprises. However, this case seems to indicate that mergers and acquisitions or mergers between state-owned enterprises still require a solid consideration of antitrust risks based on the actual situation of the relevant market. If the market share is high, conditional risks cannot be excluded.

2、 The relevant market is finely divided and the market share of trading entities is high

1. Relevant product and service markets

The two parties in this transaction intend to establish a new joint venture in Shanghai Pudong Airport to engage in the smart airport cargo terminal service business. The cargo terminal business belongs to the upstream of the air cargo business, so the relevant commodity markets in this case are respectively defined as the airport cargo terminal service market, the international air cargo service market, and the domestic air cargo service market.

Compared to previous transactions involving airports, the definition of the relevant commodity market is narrower this time. For example, in the case where operators such as the Alberta Investment Management Corporation and the Ontario Teachers' Retirement Fund Council acquired control of London City Airport through contracts, the relevant commodity market was defined as an airport infrastructure service market for airlines. Similarly, in the case of Hainan Development Holding Co., Ltd. acquiring the equity of four companies, including HNA Infrastructure Investment Group Co., Ltd., the relevant market is also defined as the airport infrastructure management and operation market in China.

2. Relevant geographical markets

In this transaction, the regional market served by the airport cargo terminal is Shanghai Pudong Airport; The regional market for international/domestic air cargo services is a combination of international/domestic routes starting from Shanghai Pudong Airport and international/domestic routes destined for Shanghai Pudong Airport.

Compared with previous related transactions, the relevant geographical markets defined by this transaction are still relatively narrow. Regarding the division of regional markets for freight services, in previous antitrust cases in China, specific routes/routes were usually used as the basis for division, and the terminal range of routes was large, usually defined as inter country or inter regional markets. For example, in the "Announcement on the Approval of the Merger and Acquisition of the Equity Interest of South American Shipping Group in Hamburg by Maersk Shipping Company with Additional Restrictive Conditions" issued by the Anti monopoly Bureau of the former Ministry of Commerce on November 7, 2017, the regional market for liner shipping services was divided into "Far East Nordic", "Far East Indian Subcontinent", and "Far East Middle East" regions.

Similarly, in the case of Hainan Fangda Aviation Development Co., Ltd. acquiring the equity of three companies, including Hainan Airlines Holding Co., Ltd., the relevant geographical market is the aggregation of routes with their departure, stopover, and destination within China, as well as the aggregation of routes with one of their departure, stopover, and destination within China. This transaction has been narrowed to take Pudong Airport as the starting point and destination.

3、 Reasons for additional restrictive conditions

The decision provides three explanations for the reasons for the additional restrictive conditions.

First of all, both parties have a high market share in the airport cargo terminal service market. As mentioned in this decision, China Eastern Airlines Logistics and Airport Group have a respective market share of 35-55% and 25-45%, with a total of over 70% for both parties.

Secondly, there will be synergies and unilateral effects in the airport cargo terminal service market.

Thirdly, due to the upstream and downstream relationship between cargo station services and air cargo services, there will be a blocking effect in the longitudinal direction.

4、 Content of additional restrictive conditions

There are six additional restrictive conditions, which can be summarized in three main aspects:

1. Information isolation;

2. Continue to perform pre transaction treatment;

3. FRAND principle.

We believe that:

1. The above conditions are behavioral and are expected;

All additional behavioral conditions are conditions frequently applied by the General Administration. Inviting the China Air Transport Association as a supervision and guidance institution for the implementation of commitments is a highlight;

3. Among the restrictive conditions, the effective period of the remaining restrictive conditions is 8 years, except that the effective period for continuing to perform the pre transaction conditions is 5 years, and the expiration date requires approval before termination, which is not short.

5、 Inspiration

1. Break the superstition that mergers and acquisitions of domestic enterprises or state-owned enterprises will not be conditional. Avoid contempt and fluke, and prepare a plan based on the actual situation of the transaction. Strive to anticipate the potential concentration risk of operators in advance before the transaction is implemented, reasonably and legally arrange the transaction structure and schedule, and avoid causing passivity to enterprises and transactions due to restrictive or prohibited measures made by antitrust law enforcement agencies.

2. China has a large number of enterprises providing air transportation services, with a significant geographical distribution. Combined with the characteristics of the aviation industry, airlines everywhere have or actually have airports that exist as "main bases". For domestic airlines, logistics companies, airports, etc., in subsequent concentration transactions, the scope of the relevant regional market should be evaluated based on the actual situation of the transaction. If the transaction takes place at the main base airport, the airport itself may be designated as a separate relevant regional market, resulting in a high market share.

For ordinary cases, attach importance to communication with industry authorities and industry associations. Avoid accidents that result in conditional transactions due to poor communication.
4. Pay attention to details. The author has always believed that the expression of the definition of the relevant market in the concentration declaration is artistic rather than scientific. The declarant and the attorney have great potential in this regard. The declaration should actively and steadily prepare the application materials for concentration of business operators, and select an experienced lawyer team.