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Commerce Commission Draft Determinations

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Commerce Commission Draft Determinations ISSN NO. 0114-2720 J5633/J5645 PUBLIC VERSION Commerce Commission Draft Determinations Determinations pursuant to the Commerce Act 1986 in the matter of an application for authorisation of a business acquisition and in the matter of an application for authorisation of certain restrictive business practices and involving: QANTAS AIRWAYS LIMITED and AIR NEW ZEALAND LIMITED The Commission: MJ Belgrave PR Rebstock PJ Taylor DF Curtin D Bates QC Summary of Applications: The subscription by Qantas Airways Limited of up to 22.5% of the voting equity in Air New Zealand Limited pursuant to a Subscription Agreement between Air New Zealand Limited and Qantas Airways Limited (the proposed Acquisition); and The implementation by Air New Zealand Limited and Qantas Airways Limited of the terms of a Strategic Alliance arrangement which creates a Joint Airline Operation network (the proposed Arrangement) Draft Determinations: The Commission’s draft determination, on the basis of the information provided to date, is that it would be likely to decline an authorisation for the proposed Acquisition pursuant to s 67(3)(c) of the Act. The Commission’s draft determination, on the basis of the information provided to date, is that it would be likely to decline an authorisation for the proposed Arrangement pursuant to s 61(1)(b) of the Act. Date 10 April 2003 CONFIDENTIAL MATERIAL IN THIS REPORT IS CONTAINED IN SQUARE BRACKETS CONTENTS EXECUTIVE SUMMARY........................................................................................................ 9 Proposed Alliance................................................................................................................. 9 Framework for Consideration ............................................................................................ 9 Commission Process............................................................................................................. 9 The Factual and Counterfactual....................................................................................... 10 The Factual ...................................................................................................................... 10 The Counterfactual........................................................................................................... 10 Market Definition and Competition Analysis.................................................................. 11 Detriment ............................................................................................................................ 12 Benefits ................................................................................................................................ 12 Net Effect............................................................................................................................. 13 Conditions ........................................................................................................................... 14 Draft Determination........................................................................................................... 14 Next Steps............................................................................................................................ 14 THE PROPOSALS .................................................................................................................. 15 Proposed Acquisition ......................................................................................................... 15 Proposed Arrangement...................................................................................................... 15 COMMISSION PROCEDURES ............................................................................................. 16 THE PARTIES......................................................................................................................... 18 Air NZ.................................................................................................................................. 18 Qantas.................................................................................................................................. 18 OTHER RELEVANT PARTIES ............................................................................................. 19 Virgin Blue Airlines (Virgin Blue).................................................................................... 19 Origin Pacific...................................................................................................................... 19 Other Provincial Operators............................................................................................... 20 Asian Carriers .................................................................................................................... 20 Cathay Pacific..................................................................................................................20 Singapore Airlines............................................................................................................ 20 Thai Airways ....................................................................................................................20 Malaysia Airlines ............................................................................................................. 20 Garuda Indonesia (“Garuda”) ........................................................................................ 21 Korean Air........................................................................................................................ 21 Asiana Airlines (“Asiana”).............................................................................................. 21 EVA Air ............................................................................................................................ 21 Pacific Islands Carriers ..................................................................................................... 21 Polynesian Airlines .......................................................................................................... 21 Air Tahiti .......................................................................................................................... 21 Royal Tongan Airlines...................................................................................................... 22 Air Pacific ........................................................................................................................ 22 Air Vanuatu ...................................................................................................................... 22 Other Carriers.................................................................................................................... 22 Aerolineas Argentinas...................................................................................................... 22 Lan Chile.......................................................................................................................... 22 United Airlines .................................................................................................................22 APPLICATION OF THE COMMERCE ACT........................................................................ 23 Proposed Acquisition ......................................................................................................... 23 Proposed Arrangement...................................................................................................... 24 COMPETITION FRAMEWORK............................................................................................ 28 INDUSTRY BACKGROUND ................................................................................................ 30 Introduction ........................................................................................................................ 30 Regulatory Background..................................................................................................... 30 Introduction...................................................................................................................... 30 International Obligations................................................................................................. 30 ICAO................................................................................................................................. 30 Bilateral System—Air Service Agreements ...................................................................... 31 Freedoms of the Air...................................................................................................... 33 Substantially Owned and Effectively Controlled......................................................... 35 New Zealand’s ASAs................................................................................................... 36 Open Skies Agreements ............................................................................................... 37 Multilateral Agreement for Liberalisation of Air Transportation ................................ 37 Australasian Single Aviation Market ........................................................................... 38 International Air Service Licences............................................................................... 39 Competition Implications of Bilateral System............................................................. 39 Domestic Safety and Security Regulation in New Zealand.............................................. 40 Civil Aviation Act 1990
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