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Joint Venture Agreement Airlines

Chris Randall is a corporate partner in our London team and a member of the Norton Rose Fulbright Global Aviation Group, where he has provided extensive advice on joint ventures and alliances in the airline industry. Chris is a senior partner and qualified as a lawyer in London and Hong Kong. Chris has extensive experience in international equity offerings, mergers and acquisitions of public and private companies, joint ventures and advising listed companies. Consultations in the air transport sector include: the disadvantages are obvious, the consolidation of large airlines in joint venture agreements moves their competitors out of the market and this leads to higher fares. Specifically, based on Cornell University School of Law, Joint Venture is a legal organization that takes the form of a partnership in which individuals jointly make a transaction for mutual benefit. This means that all parts of a business contribute assets and share all risks. Joint ventures (JVs) are emerging in the aviation world, helping airlines offer consumers choice and grow their businesses. Examples include Air France-KLM-Alitalia and Delta over the Atlantic; Japan Airlines-British Airways and Finnair connect Japan and Europe; and the ANA-United joint venture across the Pacific. Some analysts have even gone so far as to assume that in the coming years, nearly half of all long-haul traffic will be carried by a joint venture. As the business environment of the aviation industry becomes more competitive, more and more airlines have chosen to enter into partnerships and joint ventures with other airlines. These relationships offer the advantage of increasing the reach and distribution of each airline`s network, resulting in tangible marketing, sales and customer benefits.

In addition, alliances expand an airline`s overall market for relatively low additional costs. As a result, airline joint ventures tend to be very complex tailor-made arrangements that address issues such as governance and revenue sharing on a contractual basis outside the scope of corporate law. In terms of governance, business decisions are usually made by designated committees in which each partner is represented, with decisions being taken unanimously and providing for escalation in case of disagreement. Revenue-sharing provisions can be very complex, but they are based on the principle that all partners benefit if all the activities that are the subject of the joint venture are functioning well. The idea is that the parties are economically agnostic about whether a particular passenger is flying on their plane or their partner`s. Etihad`s strategy has at times had a bumpy run. The 29% stake in Air Berlin was under threat in 2015 when the Federal Ministry of Transport refused to approve 29 codeshare routes between Air Berlin and Etihad. Airlines have now reversed the decision for the majority of these routes. Joint ventures potentially create a more efficient aviation industry as a whole and offer many benefits to airlines, customers and the global economy. Joint ventures are not the only way forward, as airlines seek what they see as much-needed consolidation.

Qatar Airways and Etihad, for example, have taken a different approach to seeking greater efficiency. Qatar adds a 10% stake in Latam Airlines Group to its 15% stake in International Airlines Group. Of course, airlines can also cooperate with other airlines or third parties with regard to specialties of mutual interest. For example, a number of airlines are involved in a joint venture, which in turn holds a majority stake in the UK`s National Air Traffic Service (NATS). In this context, all airlines have an interest in ensuring that air traffic services (which are a natural monopoly service) are operated safely and efficiently. These types of joint ventures tend to be more similar to traditional joint ventures in other industries and are not discussed in detail in this interview. Airline alliances and joint ventures obviously influence the degree of competition between airlines and therefore raise competition law issues. Overall, competition authorities in the United States and Europe have always been willing to sanction such joint ventures on the grounds that they improve the service customers receive and facilitate global competition, but many other global competition authorities have also reviewed (and taxed) airline joint ventures. In the United States, such an approval is called antitrust immunity, or ATI. Under EU rules, decisions have been taken on the main transatlantic joint ventures under Article 101 (the rule prohibiting anti-competitive agreements). Unlike many joint ventures, airline joint ventures are usually contractual arrangements and are not formed by a corporate vehicle. Indeed, in the past, most jurisdictions have required airlines to comply with nationality-based ownership and control (O&C) requirements in order to be granted operating rights.