@ ey Fir Compettion wore For Greater Good COMPETITION COMMISSION OF INDIA 1% September 2023 Notice under Section 6(2) of the Competition Act, 2002 given by Tata Sons Private Limited, Singapore Airlines Limited, Air India Limited, Talace Private Limited, and ‘Tata SIA Airlines Limited. CORAM: Ms. Ravneet Kaur Chairperson Dr. Sangeeta Verma Member: mn Act, 2002 Order under Secti (1) of the Background On 18" April 2023, the Competition Commission of India (Commission) received a notice under sub-section (2) of Section 6 of the Competition Act, 2002 (Act) given by Tata Sons Private Limited (TSPL), Singapore Airlines Limited (SIA), Air India Limited (AIL) and Tata SIA Airlines Limited (Vistara) (hereinafter, ‘Notice”]. Subsequently, Talace Private Limited (Talace) became a notifying party (hereinafter, TSPL, SIA, AIL, Vistara and Talace are referred to as ‘Parties’). In relation to the proposed combination, an Implementation Agreement amongst TSPL, SIA, Talace, AIL, and Vistara; and a Shareholders’ Agreement (SHA) amongst TSPL, SIA, and ATL has been entered on 29% November 2022. Page 1 of a5x 2 IL. COMPETITION COMMISSION OF INDIA le Gi In terms of Regulation 14 of the Competition Commission of India (Procedure in regard to the transaction of Business relating to Combinations) Regulations, 2011 (Combination Regulations), vide letter dated 4" May 2023, the Parties were required to remove defects in the notice and provide certain information/document(s) latest by 11"* May, 2023. In the said letter, it was inter alia communicated to the Parties that the notice was incomplete with respect to various aspects, which are essential for the assessment and that the notice would be considered to be filed on the date of submission of complete information, The Parties filed their response vide communications dated 11" May 2023 and 25" May 2023. Parties to the Proposed Combination TSPL: ‘The Parties have submitted in the Notice that TSPL is an investment holding company, which is registered as a core investment company with the Reserve Bank of India and classified as a “Systemically Important Non-Deposit Taking Core Investment Company”. TSPL’s relationship with its group operating companies is governed primarily by: (a) shareholding held by TSPL in such companies and (b) Brand Equity and Business Promotion Agreement, ‘TSPL operates in India under the trade name ‘TATA’ and ‘Tata Sons’. The Tata Sons Group operates in multiple sectors including technology, steel, automotive, consumer and retail, infrastructure, financial services, aerospace and defense, tourism and travel, telecom and media, trading and investments. The Tata Sons Group is present in the civil aviation sector through AIL [including Air India Express Limited (AIXL), AIX Connect Private Limited (ACPL) and Air India SATS Airport Services Private Limited (AISATS)] and Vistara. TSPL also has an indirect sharcholding in Taj SATS Air Catering Limited (Taj SATS) which includes Taj Madras - as a result of the merger of Taj Madras into Taj SATS, and provides in-flight catering services to airlines in India, TSPL also holds 80.53% shareholding in Taj Air Limited (Taj Air), which is engaged in the provision of charter flight services in India, Page 2 of 45 ——--—COMPETITION COMMISSION OF INDIA e AIL: AIL is a subsidiary of TSPL and wholly owned by the’! ita Sons Group. Previously, it was operated under the administrative control of the Ministry of Civil Aviation and was entirely owned by the Government of India (Gol). AUL’s acquisition by TSPL (through Talace) was completed on 27" January 2022, pursuant to the approval of the Commission. AIL, along with AIXL, is engaged in the business of providing: (a) domestic scheduled air passenger transportation service, (b) international scheduled air passenger transportation service, (c) air cargo transportation services, and (4) provision of charter flight services. As of January 2023, AIL has a network coverage of [fl domestic destinations and Il international destinations and AIXL serves ff domestic and ff international destinations AISATS, a subsidiary of AIL, is engaged in the business of providing ground handling services at Delhi, Bengaluru, Hyderabad, Mangalore and Thiruvananthapuram airports, and cargo handling services at Bengaluru airport. ACPL, a wholly owned subsidiary of AIL, is an erstwhile joint venture between TSPL and AirAsia Aviation Group Limited. ACPL is primarily engaged in the business of providing: (@) domestic scheduled air passenger transportation service, (b) air cargo transportation services, and (c) charter flight services in India. ACPL does not provide scheduled air passenger transportation services on intemational routes. Vistara: Vistara is a joint venture between TSPL and SIA. TSPL and SIA hold 51% and 49% of the total shareholding, respectively. Tata SIA Airlines Ltd, operates under the brand name eduled air “Vistara”. Vistara is engaged in the business of providing: (a) domestic passenger transportation service, (b) international scheduled air passenger transportation service, (c) air cargo transportation services, and () charter flight services. As of January 2023, Vistara serves ff scheduled domestic destinations and fi] scheduled international destinations. It has been submitted that Vistara is a relatively new player on international routes and has commenced its international operations only in FY 2019-20, Page 3 of 45--COMPETITION COMMISSION OF INDIA Talace: 9. Talace is a wholly owned subsidiary of TSPL. It recently acquired ~100% of the equity share capital and interest of AIL. As a result, it also indirectly acquired AIL’s 100% shareholding in AIXL and 50% shareholding in AISATS. Talace has no independent business activities of its own, except its shareholding in AIL. SIA: 10, SIA is the parent entity for the SIA group of companies (SLA Group). SIA is engaged in the business of passenger and cargo air transportation, The principal activities of SIA Group consist of passenger and cargo air transportation, engineering services, training of pilots, air charters, tour activities, sale of merchandise and related activities. The SIA Group has business presence in India through some of its subsidiaries/affiliates including Vistara, Scoot Pte Ltd. (Scoot) - a wholly owned subsidiary; Cargo Community Network Pte Ltd., and S IkAir (Singapore) Private Limited. 11. It has been submitted that Temasek (Holdings) Private Limited (Temasek) effectively holds around 55% shareholding in SIA. However, being a listed entity, SIA operates independent! y fn Proposed Combination 12, Ithas been submitted that the proposed combination comprises the following steps: i, Step I; Reorganisation of the shure capital of AIL by writing down the total amount appearing in “Other Equity on Disinvestment” with a corresponding adjustment against the “Retained Barings” of AIL and reduction of the share capital of AIL by reducing the face value of its equity shares from INR 10 per equity share to INR 4 per equity share by setting it off against the “Retained Earnings”, Page 4 of 45 -COMPETITION COMMISSION OF INDIA 2? le Gi ii, Step IE: The merger of Talace (a wholly owned subsidiary of TSPL and the holding company of AIL) into AIL, with AIL being the surviving entity. iii, Step IIE: The merger of Vistara into AIL (Proposed Merger), with AIL being the surviving entity (Merged Entity). In consideration, the Merged Entity will issue: a. fully paid-up equity shares of face value of INR 4 each of AIL (i.e., the Merged Entity) to TSPL, for every 1 fully paid-up equity share held by TSPL in Vistara; and b, 2.5487 fully paid-up equity shares of face value of INR 4 each of AIL (ie, the share held by SIA in Vistara Merged Entity) to SIA, for every | fully paid-up eq (collectively, Step IH). iv. Step IV: Additionally, AIL will issue fully paid-up equity shares to SIA on a preferential basis at a price of INR 5.56 per equity share for an aggregate cash consideration of INR 2058.50 crores (Step ), in a manner such that upon completion of Steps HIV, SIA holds 25.1% of the total issued and paid-up equity share capital of the Merged Entity. (Steps J to IV above are hereinafter, collectively referred to as the Proposed Combination). 13. The Parties have submitted that each of the above steps are interdependent on each other and there is no other transaction that is interconnected to the Proposed Combination under Regulations 9(4) and 9(5) of the Combination Regulations. 14, Itis stated in the Notice that TSPL and SIA will secure rights in the Merged Entity under the SHA which include right to appoint director(s) to the board, consultation on certain matters and access to information. TSPL shall be entitled, at all times, to appoint the chairperson of the Board who shall be an Indian citizen and shall have a casting vote. 15. Additionally, it has been submitted that the Parties intend to give effect to commercial cooperation through a new framework agreement (New Framework Agreement), Page 5 of 45e COMPETITION COMMISSION OF INDIA é 2. Accordingly, the same is not considered for the purpose of assessment of the Proposed Combination. tice IV. Submissions in the re stated as 16. Brief submissions of the Parties in the Notice and their overlapping activitis under: 17. Itis submitted in the Notice that for the purpose of competition assessment of the Proposed Combination, the parties have considered overlaps between (a) Vistara and the relevant companies of the Tata Sons Group which have presence in the aviation sector; the overlap assessment between Tata Sons Group entities and Vistara is conducted in view of the Proposed Merger, given that Vistara is a joint venture of TSPL and SIA; and (b) SLA Group vis the Merged Entity (which would comprise AIL, Vistara, and AIL’s AIXL, ACPL and AISATS). and Temasek vis- existing sub () Overlapping Activities of the Parties. 18. As per the information provided in the Notice, the aetivities of AIL and its subsidiaries on the one hand and Vistara on the other hand exhibit horizontal overlaps in the areas of (a) passenger air transportation services (domestic and international), (b) air cargo transportation services (domestic and international), and (¢) provision of charter flight services. Further, the activities of the said parties exhibit vertical’ complementary relationships in (a) ground handling services, used as an input by passenger air transportation service providers and (b) in-flight catering services, used as an input by air passenger transportation service providers. Both AIL and Vistara are also engaged in providing postal mail services and security services at certain airports in India, However, these are only ancillary services and AIL and Vistara have derived insignificant revenues from both these business verticals. Page 6 of 45 — ——¥ COMPETITION COMMISSION OF INDIA @: le a (ii) Relevant market: 19. Relevant market for the purpose of competition assessment in civil aviation industry is largely delineated at the level of origin and destination (O&D) pairs. However, services of aviation companies may also be seen from other perspectives such as full-service carrier (FSC) vi premium economy class services; direct and one-stop flights in case of long-haul vis low-cost carrier (LCC); business class services vis-d-vis economy or international travel. The industry being network driven, aviation consolidations may also merit examination from that perspective. However, if it is shown that the competition assessment of the proposed combination remains the same in any way the market is delineated out of the plausible alternative scenarios, precise delineation of relevant market may not be required. It has been submitted that the competition assessment of passenger air transportation could be assessed at the level O&D pairs, as travel between one pair of O&D is not substitutable with another pair. (iti) Overlapping O&D pairs in domestic passenger air transportation services. The Parties have submitted in the Notice that the passenger air transportation services of both AIL and Vistara overlap in the following 48 O&D pairs within India: SI. No. Airport Code Route/City O&D Pair 1 AMDBOM Ahmedabad-Mumbai 2 AMDDEL Ahmedabad-Delhi Ms ATQDEL Amrritsar-Delhi 4 BBIBOM Bhubaneshwar-Mumbai bi BBIDEL Bhubaneshwar-Delhi 6 BLRBOM Bengaluru-Mumbai a BLRDEL. Bengeluru-Delhi 3s | “BERGAU | Bengaluru-Guwahati 9 BLRGOI Bengaluru-Goa a - Page 7 of 5COMPETITION COMMISSION OF INDIA SINo. ‘Airport Code Route/City O&D Pair 10 BLRHYD ‘Bengaluru-Hyderabad i BLRPNQ Bengalura-Pune 12 BOMCCU Mumbai-Kolkata 13 BOMDEL Mumbai-Delhi 14 BOMGOT Mumbai-Goa 5 BOMHYD ‘Mumbai-Hyderabad 16 BOMIDR Mumbai-Indore 17 BOMJAT Mumbai-Jaipar 18 BOMMAA, Mumbai-Chennai 19 BOMUDR Mumbai-Udaipur 20 BOMVNS Mumbai-Varanast 21 CCUDEL Kolkata-Deihi 2 CCUIXZ, Kolkata-Port Blair B COKDEL Cochin-Dethit 24 DELGAU Dethi-Guwahati 25 DELGOI Delhi-Goa / 26 DELHYD Delhi-Hyderabad 27 DELIDR Delhi-Indore 28 DELIXB Delhi-Bagdogra 29 DELIXL. Delhi-Leh 30 DELIXR Delhi-Ranchi 31 DELLKO Deihi-Lucknow 32 DELMAA Delhi-Chennai 3 DELPAT Delhi-Patna 34 DELPNQ Delhi-Pune 35 DELSXR Delhi-Srinagar 36 DELTRV Delhi-Thiruvananthaparam 7 DELUDR Delhi-Udaipur 38 DELVNS Delhi-Varanasi Page 8 of 4§g COMPETITION COMMISSION OF INDIA SI. No. Airport Code Route/City O&D Pair 39 TXISXR Jammu-Srinagar 40 TXIDEL Jammu-Delhi 4 BLRMAA ‘Bengaluru-Chennai 2 BOMCOK Mumbai-Cochin 8 BOMLKO Mumbai-Lucknow 4 BOMTRV Mumbei-Thiruvananthapuram 45 CCUGAU Kolkata-Guwahati 46 ‘CCUIXA Kolkata-Agartala 47 BLRCCU Bengaluru-Kolkata 8 GOIHYD Goa-Hyderabad (iv) Overlapping O&D pairs in international passenger air transportation services: 20. In case of international routes, it has been submitted that operations of the Parties with respect to passenger air transportation services overlap in 24 routes, as shown below: Table 2: Overlapping O&D pairs in International Routes SI.No. | Airport Code | Route/ City O&D Pair | AI/AIXL | Vistara | STA/Scoot 1 BLRSFO | Bangelore-San Francisco Yes No Yes 2 BOMAUH | Mumbai-Abu Dhabi Yes Yes No 3 BOMBKK | Mumbai-Bangkok Yes Yes Yes 4 BOMDXB _ | Mumbai-Dubsi Yes Yes No 5 BOMJED — | Mumbai-Jeddah Yes Yes No 6 BOMMCT | Mumbai-Muscat Yes Yes No 7 BOMMLE | Mumbai-Maldives Yes Yes No 8 BOMSFO | Mumbai-San Francisco Yes No Yes 9 BOMSIN | Mumbai-Singapore Yes Yes Yes 10 DELBKK _ | Bangkok-Delhi Yes Yes Yes i DELCDG __ | Delhi-Patis Yes Yes No 2 DELDAC | Dhaka-Delhi Yes Yes No Page 9 of $5.# COMPETITION COMMISSION OF INDIA SLNo. | Airport Code | Route/ City O&D Pair | AW/AIXL | Vistara | SIA/Scoot | 13 DELFRA __| Delhi-Frankfurt Yes Yes No | 14 | DELHKG | Delhi-Hongkong Yes ‘No Yes 5 DELICN | Delhi-Incheon Yes No Yes 16 | DELKTM | Delhi-Kathmandu | Yes Yes No 7 DELLHR | Delhi-London Heathrow Yes Yes No | 18 DELMEL _ | Delhi-Melbourne “Yes No Yes | | 19 | DELSFO | Delhi-San Francisco “| No ‘Yes “DELSIN _| Delhi-Singapore | Yes Yes | DELSYD _| Deihi-Sydney | No 22.| MAASIN | Chennai-Singapore No Yes | 23 TRZ Tiruchirappalli-Singapore Yes No “Yes 24 DELHNDINRT | Delhi-Tokyo | Yes | No| Yes (9) Other horizontal overlaps: 21, Air Cargo Services: Both AIL and Vistara are engaged in domestic and international air cargo services. The Parties have submitted that their combined market shares in these segments are 24.42% and 13.37%, respectively. Further, the Parties have cited the presence of specialised service providers in the domestic cargo segment and the presence of several incumbents like Emirates, Aerologic and Turkish airlines in the market for international cargo services, 22. Charter Flight Services: In AIL (including its wholly owned subsidiaties AIXL and ACPL), Vistara and Taj Air are of charter flight services, the Parties have submitted that engaged in the provision of charter flight services in India. Incase of these services the cities of origin and destination are typically determined by customers and the entities have the ability to service customers across India, Therefore, the relevant geographic market may be considered at the pan India level. Further, it is claimed that the revenue generated through provision of charter flight services accounted for less than [ff of AIL’s total turnover and only [EE of Vistara’s total turnover. Page 10 of 45 7¢ COMPETITION COMMISSION OF INDIA Q: 7 (vi) Ground handling services: 23, AISATS, a joint venture of AIL, provides ground handling services to airlines at the Bengaluru, Hyderabad, Delhi, Thiruvananthapuram and Mangelore airports, while, Vistara provides (a) air passenger transportation services at these airports except at the Mangalore airport and (b) has procured ground handling services from AISATS at Bengaluru, Hyderabad, Delhi and Thiruvananthapuram airports in FY 2021-22. Similarly, SIA (including Scoot) provides (a) air passenger transportation services at these airports except at the Mangalore airport and (b) has procured ground handling services from AISATS at Bengaluru, Hyderabad, Delhi, and Thiruvananthapuram airports in FY 2021- 22. The Parties have submitted that AISATS does not have the ability to cause input foreclosure as Celebi Airport Services India, Bird Worldwide Flight Services, Globe Ground India Pvt. Ltd. and Menzies Aviation would ensure that the competitors of Vistara and SIA in the downstream market would be able to source ground handling services easily from the competitors of AISATS in the upstream market, Further, the extant regulatory framework allows automatic approval for any airline to undertake ground handling services themselves. (vii) In-flight catering services: 24, It has been submitted that Taj SATS is engaged in the provision of in-flight catering services to various air passenger transportation service providers, whereas Vistara is engaged in the provision of air passenger transportation services. The relevant upstream market may be taken as provision of in-flight catering services and downstream market may be taken as air passenger transportation services. With regard to in-flight catering services provided to passengers on board various domestic and international airlines flying within, into and out of India; the Parties have submitted that keeping in mind customer preferences, the relevant upstream geographic market should be defined as India, (viii) Voluntary commitments offered by the Parties, in the Notice: SL Page 11 of 45. .26. 21. 28. 29, COMPETITION COMMISSION OF INDIA @ Prima facie Competition Concerns Based on the information provided by the Parties in the Notice and preliminary assessment of the Proposed Combination, the prima facie observations of the Commission were as follows: Before getting into prima facie competition concems, it would be appropriate to list the characteristics of the civil aviation industry. It was observed that the markets in civil aviation industry in general are characterised by an oligopolistic structure, The industry is characterised by high fixed and operational costs, substantial investment and regulatory requirements, which makes the markets less conducive for entry, With limited players in the market; transparency of prices and high price elasticity of demand could result in Page 12 of 4530. 31. COMPETITION COMMISSION OF INDIA e: aggressive competition at times. There have been instances where aggressive pricing strategies have also led to financial distress of some players. Airlines operate with a fixed supply for a certain band of predicted demand and will increase to another level when the predicted demand is higher for considerable future period. They operate in that region of the supply curve which is highly inelastic by offering ‘fixed supply at different prices in a band. In addition, the international air transportation is, h seats operated by each of subject to the Air Service Agreements (ASAs) entered into between the nations, w may either make the skies open or may determine the number of the counterparties every year. ASAs, by limiting operations add to the industry-specific constraints. ‘The Commission observed that the Proposed Combination entails combination of two large players in the aviation sector, leading to increase in level of concentration, resulting in a duopoly structure in some domestic and international O&D pairs and near monopoly in some routes between India and Singapore. Thus, prima facie, the Merged Entity could have the ability and incentive to increase prices in such O&D routes. In relation to domestic air passenger transportation services, prima facie, it appears that 36 domestic O&D pairs, where both AIL and Vistara offer air passenger transportation services, are getting concentrated as a result of the Proposed Combination. Further, in the Business Class services, the Parties are the only two players operating on the domestic routes, which is likely to lead to a monopoly situation post-combination, twas also noted that in respect of domestic air passenger transportation services: (i) The number of overlapping routes had decreased from that identified in the previous Registration No. C-2021/11/883 (ALL Acquisiti Gi) There are 48 overlapping domestic O&D pairs identified in the Notice. The post combination HHI in these overlapping O&D pairs ranges between 2500 and 7000. ‘The post combination delta HHI in 36 of the 48 routes would be more than 200. Page 13.0f 45bf COMPETITION COMMISSION OF INDIA Gii) Based on passengers travelled for FY22-23, the Merged Entity would have a market share greater than 40% in 22 routes of the 48 overlapping domestie O8&D pairs (as shown in Table 3), Based on seat capacity, the Merged Entity would have a market share greater than 40% in 15 routes (as shown in Table 4), (iv) Based on passengers travelled, the market share of the Merged Entity is greater than 50% in 6 domestic O&D pairs and between 40% - 50% in 16 domestic O&D pairs (as shown in Table 3). ‘Table 3: Market Share in % (Passengers Travelled) in Domestic Routes (FY22-23) | Route? | AlGroup | TATA-SA | Combined ‘Competitors CityOeD | Group Pair | (AFFAIXL+ | GIA+ Go | Indigo | Spicedet Air Asia) _| Vistara) __| First DELTRV | 35-40 40-45 1520 | 05 COKDEL | 45-50 25-30 20-25 BLRGAU | 40-45 20-25 25-30 BBIDEL 25-30 30-35 35-40 BBIBOM 15-20 30-35 45-50 05 ATQDEL | 20-25 35-40 05 BOMUDR | 15-20 ~ | 40-45 5-10 BLRDEL | 25-30 30-35 | 5-10 DELIDR 15-20 BLRGOI | 35-40 BOMHYD | 10-15 DELGAU | 30-35 | DELIXR: 30-35 DELMAA | 20-25 BOMDEL | 15-20 BLRAYD 25-30 BLRBOM | 15-20 DELUDR 10-15 - 40-45 ee eee Page 14 of 45. ~~COMPETITION COMMISSION OF INDIA @ DELLKO | 30-35. [5-10 40-45 5-10 | 40-45 0-5 DELPNQ | 20-25 15-20 40-45 | 25-30 | 20-25 [5-10 DELHYD | 15-20 20-25 40-45 | 10-15 | 40-45 [5-10 DELGOI 10-15 404s) 101s | 3035 | 1530 farket Share in % (Seat Capacity in Domestic Routes (FY2 [ Route/ City | AlGroup | TataSA | Combined Competitors O&D Pair Group | _| (ADF AIXL | Vistara Go First | Indigo | Spice Jet + Air Asia) DELTRV 35-40 35-40 | 0-5 | 25-30 | 0-5 COKDEL 30-55 20-25 05 | 25-30) 05 BBIDEL 25-30 25-30 : 45-50 | 0-5 BLRGAU 35-40 15-20 05 | 30-35 ATQDEL 20-25 20-25 5-10 | 45-50 DELIXR 30-35 10-15 15-20 | 30-35 | 05 BLRDEL 25-30 15-20 $10 | 40-45 | 5-10 BBIBOM 15-20 25-30 05 | 3560) 05 DELGAU [30-35 10-15 10-15 | 35-40 | 5-10 BOMDEL 15-20 20-25 1520 | 3035 | 5-10 | DELIDR~ 10-15 25-30 05 | 55-60] 05 DELMAA 20-25 15-20 | os | 45-50 | 5-10 DELPNQ 25-30 15-20 15-20 | 30-35 | 10-15 BOMUDR 10-15 | 25-30 05 | 50-55 | 5-10 BLRGOL 3035 | 5-10 10-15 | 40-45 | 34, Although market shares are not the only metric for competition assessment in an industry such as civil aviation, the above market shares are suggestive of the fact that the concerned markets are highly concentrated. Page 15 of 45.35. 36. 37. COMPETITION COMMISSION OF INDIA Pe Gi Potential entries could constrain anti-competitive behaviour. An entry, actual or potential, ‘would be regarded as timely if the entrant could emerge as a credible competitor within a reasonable time. An entry is likely if a potential entrant finds the industry profitable and there is scope for minimum viable sales, The airlines industry is capital-intensive with high fixed and sunk costs, economies of scale and regulatory requirements that can lead to potential barriers to entry. ‘The Parties have shown the presence of one strong competitor and the likely entry of new players in the airline industry as mitigating factors for the likely harm, if any, that could arise because of the Proposed Combination, Further, itis noted that, Air India and Vistara are both FSCs whereas, the other competitor Indigo is an LCC albeit it may also offer services comparable to that of FSCs. Irrespective of the substitutability between LCC and FSC services, it is noted that the Parties are the only players offering business class services in domestic routes and thus, the Proposed Combination could result in a monopoly situation in that segment. 38. In relation to international air passenger transportation services, it is noted that: (Based on passengers travelled in FY 22-23, concentration is significant in 15 O&D pairs (as shown in Table 5) and based! on seat capacity in FY 22-23, concentration is significant in 12 O&D pairs (as shown in Table 6). International Routes ‘able 5: Market Share in % (Passengers Travelled) Direct Flight (FY 22-23) Route/ City] AT SIA | Vistara | Combined ‘Competitor 1 Competitor 2 | O&D Pair | Group | Group Airline |MS | MS DELSIN: | 45-50 | 30-35 / 20-25 | 95-100 | - eee 5 BOMSIN | 20-25 | 55-60 | 20-25 | 95-100 | indigo 0-5 : tea DELFRA | 55-60 | 0-5 | 30-35 85-90) Lufthansa | 10-15 | - - DELCDG | 55-60 | 0-5 | 25-30 80-85 | AirFrance | 15-20 : - Page 16 of 45.g COMPETITION COMMISSION OF INDIA. MAASIN | 25-30 | 40-45 [0-5 70-75 | Indigo 25-30 - TRZSIN | 25-30 | 45-50 | 0-5 70-73 | Indigo 25-30 > = DELLOR | 25-30 | 0-5 | 20-25 | 50-55 | Virgin Ad | 30-35 [British | 15-20 BOMMLE | 10-15 | 0-5 | 25-30 | 40-43 | indigo 35-40 | Go First | 20-25 BOMJED | 15-20 | 0-5 | 10-15 | 30-35 | Saudi 45-50 [Indigo | 10-15 BOMMCT | 20-25 0-5 5-10 30-35 Oman 35-40 | Go First 15-20, DELKTM 15-20 0-5 15-20, 30-35 Nepal 35-40 Indigo 30-35 BOMDXB | 25-30 | 0-5 | 5-10 | 30-35 | Emirates | 45-30 [Indigo | 10-15 BOMAUH | 10-15 | 0-5 | 10-15 | 25-30 | Fiihad 35-40 | GoFirst | 15-20 DELBKK 5-10 0-5 10-15 20-25 Thai 30-35 | Go First 15-20 BOMBKK | 10-15 | 0-5 | 5-10 | 20-25 | Thai 30-35 | Go First | 20-25 Table 6: Market Share in % (Seat Capacity) in Internation: Flight (FY 22-23) Route/ City] AT | SIA | Vistara | Combined | Competitor 1 Competitor 2 O&D Pair | Group | Group MS. ‘Airline MS. DELSIN | 25-30 | 55-60 | 15-20 | 95-100 - - - - BOMSIN | 10-15 | 70-75 | 10-15 | 95-100 - = [indigo | 0-5 TRZSIN | 25-30 | 45-50 | 0-5 70-75 |indigo | 25-30 |= - MAASIN | 15-20 | 45-50 | 0-5 8-70 |indigo | 30-35 - DELCDG | 35-40 | 0-5 | 20-25 35-60 | Air France | 40-43 | - - DELFRA | 30-35 | 0-3 | 20-25 | 55-60 [Lufthansa | 40-45 | - - DELLAR | 25-30 | 0-5 | 15-20 | 45-50 | Virgin Ad | 30-35 | British | 20-25 BOMMLE | 10-15 | 0-5 | 20-25 | 3540 [indigo | 40-45 |GoFinst | 15-20 DELKT™ | 15-20 | 0-5 | 15-20. 35-40 [Indigo | 30-35 | Nepal | 25-30 BOMJED | 15-20 | 0-5 | 5-10 25-30 | Saudi 40-43 | Indigo | 20-25 BOMMCT | 20-25 | 0-5 | 5-10 25-30 | Oman 30-35 | Indigo | 20-25 BOMBKK | 10-15 | 0-5 | 5-10 20-25 | Thai 35-40 [indigo | 15-20 Page 17 of 4539. 40. COMPETITION COMMISSION OF INDIA Pe Gi Gi) The Parties have high market share in respeet of destinations to and from India that are located in South Bast Asia (Singapore-SIN and Bangkok-BKK), South Asia (Kathmandu-KTM and Maldives-MLE), Middle East (Dubai-DXB, Muscat-MCT, Jeddah-JED and Abu Dhabi-AUH), and Europe (Frankfurt-FRA, Paris-CDG and London-LHR). (ii) The Proposed Combination changes the markets between DEL-SIN and BOM-SIN to an extremely concentrated scenario wherein the only two players offering services are coming together. The Proposed Combination appears to exhibit a situation of duopoly to monopoly, with post-merger HHT around 10000. (iv) The concentration in the DEL-CDG and DEL-FRA route is significantly high wherein the post combination combined market share of the Parties is ranging between [55 — 60] % and [85 - 90] %. Further, the concentration in DEL-LHR route is also high. () The Proposed Combination appears to increase concentration in BOM-JED, BOM- MCT, BOM-AUH and BOM-DXB. If one-stop flights are taken into consideration, which appears to be a viable substitute for long-haul flights, the combined market share of the Parties based on passengers travelled during FY 2022-23 is more than 40% in 10 international O&D pairs and post combination, delta HHI is greater than 200 in 20 international O&D pairs. BLRSFO, BOMSFO, DELICN, DELMEL and DELSYD ate the additional O&D pairs that exhibit significant concentration based on this criterion. The combined market share of the Parties on DELMEL and DELSYD routes makes it the dominant player with only one remaining credible player providing competitive constraint to the Parties, Thus, the proposed combination leads to an oligopotistie market structure wherein only around 30% to 35% of the market remains contestable, thereby, increasing the likelihood of AAEC in terms of price increase. Such market structure incentivises even the second competitor (follower) to match the higher prices of the dominant entity, thereby not only increasing the prices for end-consumers but also limiting their choices in terms of number of airlines, Page 18 of 45COMPETITION COMMISSION OF INDIA o Gs 41. In air cargo services, it is noted that the Parties together control a considerable part of the total air fleet in India for offering domestic air cargo services. The Proposed Combination, thus, appears to increase concentration in the domestic air cargo segment. 42. Itis observed that although charter flight services could be regarded as an ancillary service of a domestic passenger aviation company, the likely stronger market position of the Parties in the domestic air passenger transportation services could translate into a stronger market position of the Parties in this segment. 43. With regard to ground handling services, it is noted that the presence of third parties and ability of airlines to undertake self-handling suggests that the Proposed Combination is not likely to raise any competition concern. 44, It is observed that in-flight catering services do not appear to be critical inputs and any airline may source these services from several third parties who have capacities in catering and allied services, Accordingly, in this segment the Proposed Combination, prima facie, does not appear to raise competition concen in any of the plausible relevant markets. 45. Thus, prima facie, the Commission observed that post combination the Parties could enjoy substantial market power in certain domestic and international O&D pairs, which may result in anti-competitive consequences such as collusive pricing, non-coordinated price increase in a capacity constrained industry, unilateral increase in prices in markets with high market share, and market allocation. VIL Notice under Section 29(1) of the Act 46. The Commission in its meeting held on 13 June 2023, considered the information on record, details provided in the Notice and the responses filed by the Parties and formed a prima facie opinion that the Proposed Combination is likely to cause an AAEC in relevant ‘market(s) in India, Accordingly, the Commission decided to issue Show Cause Notice (SCN) under sub-section (1) of Section 29 of the Act to the Parties, wherein the Parties Page 19 of 43.¥ COMPETITION COMMISSION OF INDIA were directed to respond in writing, within 30 days of receipt of SCN, as to why investigation in respect of the Proposed Combination should not be conducted. The SCN ‘was communicated to the Parties vide letter dated 27" June 2023. 47. The Parties, after seeking extension of time, submitted the response to the SCN on 22" August 2023. As part of the Response to SCN, without prejudice to the submissions that the Proposed Combination does not cause any AAEC in India, the Parties offered voluntary commitments with respect to certain domestic and international O&D pairs under Regulation 25 (1A) of the Combination Regulations to address the competition concems raised by the Commission in the SCN. Subsequently, on 1% September 2023, the Parties provided additional clarifications, made certain minor revisions to the voluntary commitments and requested the Commission to consider the additional clarifications and revisions as part of Response to SCN itself. The Commission took the additional clarifications and revisions on record as forming part of Response to SCN (accordingly, hereinafter, the voluntary commitments offered as part of Response to SCN read with the additional clarifications and revisions made, is refered to as the ‘Voluntary Commitments’. VII. Response of the Parties to SCN 48. The submission of the Parties in response to the SCN are, inter alia, summarised as follows: A. Cost and Seale Efficiencies 49, The Parties have submitted that the Proposed Combination will enable the Merged Entity to realise cost efficiencies and compete more effectively in both domestic and international markets as a result of economies of scale and result in the creation of a credible competitor both in domestic and international air passenger transportation services market. 50. In the domestic aviation industry, larger airlines tend to perform better because of superior revenue performance and cost structure, which comes from superior network presence and economies of scale driven by a larger fleet. Page 20 of 45e COMPETITION COMMISSION OF INDIA @ le 51. It has been submitted that Government of India has acknowledged the need to support the cted growth of the Indian aviation market and is looking to address the significant proj infrastructure requirements by operationalising 100 additional airports by 2024 and adding capacity at existing airports in major cities with high passenger traffic. 52, Despite the domestic passenger air transportation services market being large and fast growing, it is highly fragmented and faces structural issues which the Proposed Combination should address. In particular, in spite of the existence of 4-5 other airlines and entry of players over time, which demonstrates that there are limited barriers to entry in the Indian domestic markets, only one large player has been able to consistently strengthen its market position and capture a disproportionate share of the overall market growth. 53. It is subs lines are able to offer a significantly better network presence, (ed that larger flight frequency and flight schedule to consumers compared to smaller airlines. Further, depending on the extent of capacity deployed on major metro routes, carriers are required to deploy certa Dispersal Guidelines (RDG) issued by the Ministry of Civil Aviation (MoCA). Due to imum capacities on identified categories of routes, based on the Route mi smaller fleet size, higher cost base and RDG requirements, smaller airlines are unable to match the routes offered by larger airlines. Better network planning by the Merged Entity will result in optimized flight schedules and frequencies to the benefit of the consumers. 54, Further, through pooling of the resources of AIL and Vistara such as fleet, slots and bilateral allocations coupled with network integration, the Merged Entity will be able to offer more direct flights to international destinations leading to better connectivity on international routes from domestic points. Currently, more than 50% of international traffie from non- metro cities in India flies to international locations through foreign hubs. Post consolidation, the Merged Entity plans to serve this traffic by (a) increasing its presence in these non-metro cities by routing international connections from its hubs in Delhi and ‘Mumbai and (b) enhanced slignment of the schedules of domestic flights in a manner so as to offer better two-way connectivity to its international flights. Page 21-of 45.# COMPETITION COMMISSION OF INDIA @ 4 55. AIL Group has incurred total comprehensive losses of INR 13,967 crores and Vistara incurred a loss of ~INR 1,393 crores in FY23. AIL has been unable to act as a credible ‘competitor in the aviation market for many years due to its financial and operational issues. It is submitted that for the Tata Group airlines to survive and compete effectively with global and domestic airlines and develop India as a major aviation hub, it is imperative for it to: (@) achieve scale by consolidation (b) achieve financial stability (c) focus on the LCC model for domestic market and short haul international markets and (4) focus on the FSC model for the long-hau! international markets. 56. The Parties have also submitted that the presence of other market participants (i.e, AIL, Vistara, Akasa, GoFirst and Spicelet) has not constrained Indigo’s ability to increase market share (from [40 — 45] % in FY2019 to [60 — 65] % as of June 2023) and achieve a leading market position, B. Domestic air passenger transportation services 57. Regarding domestic air passenger transportation services, the Parties have inter alia submitted as follows: () Indigo is a credible competitor 58. The Parties have submitted that in the domestic air passenger transportation services, Indigo with larger number of slots in each of the domestic level-3! and congested airports, large fleet size and largest order book of aircrafi, is a credible competitor. In this regard, it has been submitted that Indigo’s fleet order book comprises of 980 aircraft whereas AIL has an order book of 470 aircraft. A large fleet size and expansive network coverage has enabled it to gain market shares and introduce new routes/additional flight frequencies. This is also clearly demonstrated in the change in passenger market share of players pre and post temporary suspension of Go First operations due to insolvency issues. Even in the intemational routes, it is adding new routes to its network, for instance, it has started flying IND-SIN routes as well. demand significantly exceeds the airport capability. Page 22 of 45—— -¥ COMPETITION COMMISSION OF INDIA e 59, Ithas been submitted that duc to its scale, the market leader Indigo’s Revenue Per Available Seat Kilometre (RASK) performance is significantly better compared to all other LCCs due to significantly better network presence, flight frequency and flight schedule offered by them in the domestic market relative to other airlines which makes them a preferred choice for consumers. Similarly, Indigo’s Cost Per Available Seat Kilometre (CASK) is significantly lower than the average of AIL (including its subsidiaries, AIXL and ACPL) and Vistara due to larger fleet size and economies of scale, which makes it difficult for other airlines to compete with them on cost economics. The Proposed Combination will enable the Merged Entity to realise substantial cost efficiencies and compete more effectively in both domestic and international markets, as a result of economies of scale. ‘The si airline entities. The Proposed Combination may be assessed in this background. ile and cost advantage of the market leader poses a challenge for the domestic (ii) Slots 60. For-any player to operate or enter into the passenger air transportation services market, slots at the respective airports are an essential infrastructure. In this regard, the Parties have submitted that the slot availability is a constraint only in key cities such as Delhi and Mumbai. With the upcoming new airports in Navi Mumbai, Jewar (Noida) and recent expansion of terminals and runways including in Delhi, constraints on availability of slots will reduce, 61. Further, it has been stated that under MoCA’s Guidelines for Slot Allocation, slot trade is not allowed in India i.c., no airline has the right to transfer / allocate / divest its slots to any other airline. The airport slots surrendered by any airline at an airport are added to the common pool of available slots at that airport and can be allocated to another airline by the airport under MoCA’s Guidelines for Slot Allocation, subject to demand from airlines. (ii) Entry: 62. The airline industry works on negative working capital cycles as customers pay for tickets upfront and aircraft are available on lease. So, the upfront investment required fo start an ines in the airline is not substantial. Further, given the entry and presence of other ai Page 23 of 45e COMPETITION COMMISSION OF INDIA @: domestic aviation sector, the Proposed Combination will not create a duopoly in the domestic aviation market in India, 63. Further, as a matter of economic theory, entry does not need to be successful for the possibility of entry to constrain competitors. As long as the threat of entry is real, that alone suffices to serve as a competitive constraint. 64, Akasa, which was launched in August 2022, has achieved a [0 — 5] % market share within 10 months, having surpassed Spicelet which had a [0 ~ 5] % market share in June 2023.In addition, Akasa has a current fleet of 19 aircraft and is poised to operate more aircraft. Further, Spicelet is operating in the domestic aviation market and will continue to aet as a competitor. Recently, NS Aviation has also acquired 85% of Trufet and operations, () Increase in concentration in domestic O&D pairs. 65. Of the 36 O&D pairs identified in the SCN where Delta HHI is greater than 200, the Merged Entity will not be the largest player in 14 O8-D pairs* in terms of passengers flown and in 21 O&D pairs’ in terms of capacity. Further, on 14* out of the identified 36 O&D pairs, the Parties’ combined market share is less than 40%, Moreover, the market shares of competitors on several routes are fluctuating year-on-year, which is indicative of competition in the Indian aviation market. The Parties have further stated that Indigo is a credible competitor in most of the domestic O&D pairs and it faces competition from the other competitors such as Spicelet, GoAir, Akasa too. 66. The Parties have submitted that the airline industry is dynamic and a static measure like HHI does not capture the market realities. Market characteristics such as: (a) the 2 DELIDR, DELLKO, DELUDR, DELHYD, BOMMAA, CCUDEL, BOMCCU, BLRPNQ, DELVNS, DELSXR, CCUIXZ, AMDDEL, DELPAT, and IXISKR, * BBIBOM, DELMAA, BLRGOI, DELIDR, BOMUDR, BLRBOM, DELHYD, DELLKO, BOMJAI, BOMHYD, DELUDR, BLRHYD, CCUDEL, BOMMAA, BOMCCU, AMDDEL, BLRPNQ, BOMVNS, IXISXR, DELPAT, and DELVNS + AMDDEL, BLRPNQ, BOMCCU, BOMGOI, BOMIAI, BOMMAA, BOMVNS, CCUDEL, CCUIXZ, DELIXB, DELPAT, DELSXR, DELVNS, IXISXR. Page 24 of 45. - .bf COMPETITION COMMISSION OF INDIA Cs d 67. 68. 69. 10. introduction of additional capacities and new technologies, (b) changing customer demand, (©) change of slots allocated on a seasonal basis, (d) recovery and growth of the global economy post the COVID-19 pandemic, (e) fluctuating input and operational costs, and (1) s are not accounted for in HHI analysis, The factors listed in fluctuating airline ticket Section 20(4) of the Act encompass both current and potential future market conditions, providing a multi-dimensional view of competition, and not just delta HHI. Ithas been submitted that there are many examples where authorities such as the European Commission have concluded that combined market shares of up to 70% do not give rise to an AAEC. Of the 36 identified routes in SCN, only seven routes involve a market share of 50% or higher. ‘The Parties provided details of 18 domestic overlap routes where the total passenger traffic exceeds one million passengers per year on the presumption that these routes are more reflective of the state of competition in the Indian domestic market. These routes account for a total of ~35 million passengers per annum, which is 26% of total Indian domestic passenger traffic. Further, it can be Seen that in the pre-merger scenario, there exist at least five carriers (including Akasa) on all 18 overlap routes and six carriers on 11 of these routes, The existence of five/six pre-merger competitors may suffice to address duopoly concerns. ‘Importantly, the seven routes with combined market shares at or above 50% are all thin routes which account for a small proportion of overall domestic passengers in India, In FY23, it ranges from |B passengers (DEL-TRV) to NEE (BBI-DEL) for a collective total of IEEE passengers. This accounts for a mere less than 5% of total domestic Indian passengers transported. In Etihad/Jet matter, the Commission has observed that “In summary, on all routes, passengers have a major carrier to choose from other than Jet and Etihad which can constrain the pricing behaviour of Jet and Etihad and ensure that the passengers can select between more than one airline even after the combination. Page 25 of 45 —_e COMPETITION COMMISSION OF INDIA. @ 4 71. Thus, the approach of finding prima facie AAEC concerns even in markets where there are larger competitors will be contrary to the Commission’s past decisional practice, In addition, the Parties have submitted that in the past, the Commission has not required commitments in markets where the parties were not the largest player. 72. Further, it is submitted that in Suo Motu Case no. 03 of 20155 and Case no. 32 of 2016°, Commission has previously evaluated cartel concems in the domestic aviation sector and did not find any concerns. 73. In order to address the competition concems raised by the Commission in the SCN, voluntary commitments to maintain minimum capacity supply level have been offered by the Merged Entity (ie. AIL) in relation to the Proposed Combination on certain overlapping O&D routes viz. BBIDEL, BLRGAU, COKDEL, DELTRV, ATQDEL, BBIBOM and BLRDEL in the market for domestic passenger air transportation services, in terms of Regulation 25(LA) of the Combination Regulations (Domestic Commitments). () Discontinuation of services in certain routes in last one year: 74. The Parties have submitted that AIL and Vistara have operated independently pursuant to the AIL Acquisition and continue to do so, For 25 O&D routes identified as overlaps in the notice filed for past AIL Acquisition, either AIL or Vistara did not operate on these routes at the time of the AIL Acquisition or at present, For another 12 O&D routes identified as overlaps in the past, these were on account of overlaps between AIL and ACPL but given that at the time of filing the present notice, ACPL was a wholly-owned subsidiary of AIL, there was no requirement to map overlaps between AIL and ACPL. Moreover, Vistara has never operated 10 of these routes, so there are no overlaps between AIL (including ACPL) and Vistara. In 3 O&D routes, AIL discontinued its operations as it was not commercially feasible to operate on these routes on account of shortage of aircraft as well as low financial performance while prioritising better performing routes, With respect to the number of + In Re: Alleged Cartelization in the Airlines Industry © Ms. Shikha Roy ¥s. Jet Airways (India) Limited and others Page 26 of 45 : —# COMPETITION COMMISSION OF INDIA 15. 6. international O&D overlaps, the Parties have submitted that at the time of consideration of the acquisition of Air India by Talace, there were only 16 overlaps. These have now been increased to 24 overlap routes. Vistara started international operations only in FY20, after which restrictions were imposed on international travel on account of COVID-19. Itis only after March 2022 that AIL/Vistara were able to plan their respective networks and start scheduled operations, based on commercial considerations. (vi) Business Class Services. With respect to Business Class Services segment, it is submitted that business class seats constitute merely less than 5% of the total domestic seat capacity and less than 5% of passenger market share in India in FY23 based on Official Airline Guide's (OAG) data. ‘This share has significantly come down from [if of scat capacity and [I of passenger (es that the domestic market is clearly an economy- marker share in FY18, which indi centric market. The Commission in its decisional practice has never delineated a separate relevant market-for business class services. For instance, in evaluating O&D overlaps in Etihad/Jet matter, the Commission did not delineate a separate market for business class services, even though both parties involved in the transaction offered business class seats ‘on overlapping routes, To the best of the Parties’ knowledge, no competition authority has defined and assessed a separate market for business class passengers in evaluating transactions in the aviation sector, While certain authorities previously distinguished between time-sensitive passengers and non-time sensitive passengers, even that distinction is no longer created on short-haul routes, In all cases, thé authorities have consideréd full fare economy passengers with business passengers as time-sensitive. class are now Add-on services that were historically offered by FSCs in their busine: offered under LCCs’ business model, which allows passengers to separately pay for and purchase additional facilities, such as extra baggage allowance, in-flight food, priority check-in, priority boarding or lounge services. Effectively, with newer and evolving product offerings by LCCs, services which are already provided to business passengers can be purchased separately for an additional fee by economy passengers - thereby eliminating ion between the two and rendering them substitutable. Over a period any product differenti - Page 27 of 45——-~2 COMPETITION COMMISSION OF INDL Ge of time, LCCs with good on-time performance, have captured the time-sensitive premium 's a premium offering. Moreover, passengers, including by way of pitching the first row business class comprises a small fraction of the domestic traffic, which continues to decline year-on-year. (vii) Charter flight services: 7. Itis submitted that the primary difference between the services offered by airlines operating in the domestic passenger air transportation services and charter flight services is that the former is categorized as “scheduled air transportation services” and the latter is categorized as “non-scheduled air transportation services”. Scheduled air transportation service providers are required to publish their summer and winter schedules prior to the summer and winter seasons [as per Directorate General of Civil Aviation (DGCA) requirements] whereas non-scheduled air transportation service providers are not subject to such requirement given the ad-hoc nature of these services. 78. As such, while every airline operating in the market for domestic passenger air transportation services is a potential competitor to airlines operating in the charter flight services market (such as Bajaj Aviation Pvt. Ltd., Deccan Charters Ltd., GMR Aviation Pvt. Ltd., and Reliance Transport and Travels Pvt. Ltd. etc.) the vice-versa is not true. 79. In addition, the major portion of passenger traffic on charter flight services arises from Gol tenders [for Hajj, special charter requirements of the Ministry of Defence (MoD) diplomatic events, movement of defence personnel, etc.}. These are public tenders and each airline submits bids based on their respective route economics and operational constraints. In 2023, AIL has only participated in the public tenders for Hajj charters, G20 charters and afew MoD charters, 80. In FY 22, the Parties generated less than 2% revenue from the provision of charter flight services as compared to their overall revenues. Thus, AIL’s and Vistara’s operations in the Page 28 of 45# COMPETITION COMMISSION OF INDIA € Oo 81. 82. 83, market for provision of charter flight services are miniscule and any attempt to raise prices unilaterally will result in customers switching to their competitors. Domestic Air Cargo services With regard to domestic air cargo services in India, the Parties have submitted that the scope of the geographic market for air cargo transportation should be defined at a pan-India level and not on an O&D/regional basis, as the cargo may not always be transported from the point of origin directly to the destination, Itis typically routed through the hubs operated by the service provider/earrier and an itinerary dictated by its supply chain network. The customer is concerned only with timely delivery and not the actual route taken by the carrier. As such the market cannot be delineated on a regional basis. It is submitted that the Commission has never considered a narrower, regional market definition for domestic air cargo services in India, For instance, in FedEx/ Delhivery, while evaluating the horizontal overlaps between Delhivery and FedEx in India, the Commission considered the broader market for “logistics services in India” followed by a narrow market for “express services”, further segmented into domestic and international express services in India, The market for domestic express services was further split into domestic air express services and domestic road express service. However, the market for “domestic air express service” was assessed on a pan-India basis and was not further sub-segmented into regional markets. It is pertinent to note-that this approach was followed while assessing a transaction involving competitors who are primarily logistics providers, and even then, a narrower regional market was not defined. The market delineation for domestic cargo ‘market at a pan India level was considered by the Commission in the Air India Acquisition and the Air Asia Acquisition also. The Patties do not have dedicated capacity for transporting cargo unlike other players such as Indigo, Bluedart, Pradhan Air Express and Spicelet. The Parties provide air cargo services only by using any leftover belly space in their aircraft (carrying passengers) for cargo transport. The share of dedicated cargo players has not been considered by the Commission. The market shares provided in the Notice and the response to defect letter are Page 29 of 45. —