Proposed Joint Venture Between SIA Engineering Company Ltd and Airbus Services Asia Pacific Pte Ltd

Notifying Parties:

The parties to the agreement are:

1. SIA Engineering Company Limited; and

2. Airbus Services Asia Pacific Pte. Ltd.

Notifying Date:

21 April 2016 *

*CCS accepted the notification as complete on 4 May 2016 upon receiving the Parties’ clarifications on the scope of notification.

Summary of transaction:

(i)            the names of the merger parties;

SIA Engineering Company Limited (“SIAEC”) and Airbus Services Asia Pacific Pte. Ltd. (“ASAP”) (collectively, the "Parties").

(ii)           a description of the transaction;

This is a joint notification made by SIAEC and ASAP in relation to a joint venture which will be incorporated in Singapore. SIAEC, a subsidiary of Singapore Airlines Limited, and ASAP, an indirectly wholly-owned subsidiary of Airbus Group SE, intend to set up a joint venture company (the “JV”) to provide maintenance, repair and overhaul (“MRO”) services (specifically, heavy maintenance and, indirectly, line maintenance) for Airbus A350 XWB, A380, A330 and, possibly, other Airbus aircraft to customers in the Asia Pacific region (“Proposed Transaction”).

(iii)          a description of the business activities of the merger parties worldwide and in Singapore;

SIAEC’s significant business is in the provision of MRO services for aircraft, engine and related components to its customers. Specifically, the service offerings of SIAEC include airframe maintenance and overhaul, line maintenance and technical handling, component maintenance and overhaul, fleet management programme, engine overhaul, passenger-to-freighter conversion, cabin modifications, training academy, and aircraft painting. SIAEC is currently party to 27 joint ventures with strategic partners and original equipment manufacturers in Australia, China, Indonesia, the Philippines, Singapore, Taiwan, the United States, and Vietnam.

ASAP is a member of Airbus Group. Airbus Group is active in, amongst other things, the design, manufacture, sale and support of commercial aircraft, civil and military helicopters, military aircraft and defence electronics and systems. Airbus Group organises its business into three main business divisions, namely (i) Airbus, (ii) Airbus Helicopters and (iii) Airbus Defence and Space.

ASAP provides, as an Airbus sub-contractor, services related to Airbus aircraft. These services include Field Service activities, warehousing activities related to aircraft spare parts, Flight Operations support as well as marketing and promotional support with respect to Airbus aircraft and air traffic management solutions in the region. ASAP also has a joint venture in Singapore for flight training.

The JV between SIAEC and ASAP will supply MRO services (specifically, heavy maintenance and, indirectly, line maintenance) for Airbus A350 XWB, A380, A330 and, possibly, other designated Airbus aircraft under the terms of the Joint Venture Agreement (the “JVA”) to commercial airlines with their principal place of business in the Asia Pacific region who are operating the designated Airbus aircraft and are procuring or have procured MRO services (specifically, heavy maintenance and line maintenance) for such Airbus aircraft. Heavy maintenance / C and D checks include:

• Airframe modifications

• Cabin completions and modifications

• Ancillary and complementary services

The JV will not provide any line maintenance services directly (i.e. line maintenance and “A Checks”), and such services will be sub-contracted by the JV in accordance with the provisions of the JVA.

(iv)          a description of the overlapping goods or services, including brand names;

The Parties are of the view that the overlapping services relevant for the purposes of this notification are the markets for the provision of heavy maintenance and line maintenance for commercial aircraft.

(v)           a description of substitute goods or services;

Not applicable. The Parties submit that, as each of heavy maintenance services and line maintenance services are highly specialised in nature, there are unlikely to be any substitutes to these services.

(vi)          the applicant’s views on:

a.             definition of the relevant market(s);

The Parties submit that the relevant product markets for the purposes of this notification are the separate markets for heavy maintenance and line maintenance for all commercial aircraft.

For the relevant geographic markets, the Parties submit that the heavy maintenance market (including cabin completions and modifications and airframe modifications) is global, while the line maintenance market is local.

b.            the way in which competition functions in this market;

The Parties submit that the MRO Services market, including heavy and line maintenance, is highly competitive, in view of the multitude of independent, third-party competitors, as well as competing airline in-house MRO service providers. Customers typically take into consideration a variety of factors including maintenance cost, MRO capabilities, ferry cost, turnaround time, quality of work and customer service.

c.             barriers to entry and countervailing buyer power; and

The Parties submit that, in general, entry into heavy and line maintenance requires capital, regulatory approvals (which are obtained and retained through regular audits), access to intellectual property, access to talent (e.g. engineers, technicians, mechanics, etc.) and technology. However, such requirements are not, in the Parties’ view, unduly restrictive or prohibitive, and potential entrants remain able to enter into the market.

The Parties submit that the MRO services market is highly competitive and there are no barriers that would impede customers from switching suppliers. Further, customers are not restricted by the identity of the specific aircraft manufacturer of its aircraft, and are free to choose from the multitude of MRO service providers for procuring MRO Services.

d.            the competitive effects of the merger (non-coordinated, coordinated and/or vertical effects, as relevant).

Non-coordinated effects

The Proposed Transaction does not give rise to any non-coordinated effects for the following reasons:

(a)           the multitude of independent, third-party competitors, as well as competing in-house MRO service providers that currently exist in the relevant markets;

(b)           the ability of customers to easily switch between suppliers;

(c)           the ability of customers to procure services from different service providers;

(d)           customers (airline operators) are large and sophisticated customers who are well-informed and likely to be able to exercise countervailing buyer power on service providers; and

(e)           the ease and likelihood of entry by potential competitors into the relevant markets.

Coordinated effects

Coordinated effects will not arise as a result of the Proposed Transaction for the following reasons:

(a)           the multitude and competitive strengths of viable alternative suppliers including competitors of varying sizes;

(b)           in any event the competitive landscape of the market would make it extremely difficult for the JV to monitor compliance with any coordinated activities; and

the presence of large customers and the significant countervailing buyer power which may be exercised by such customers in response to any observed coordinated behavior..

Decision:

The Proposed Transaction, if carried into effect, will not infringe the section 54 prohibition.

Decision date:

14 June 2016

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