Turkey: The Board published the reasoned decision on the negative clearance/individual exemption request for the Ground Services Agreement signed between TGS Yer Hizmetleri A.Ş. and Türk Hava Yolları A.O.

Last Updated: 3 May 2017
Practice Guide by ELIG, Attorneys-at-Law

The Board published the reasoned decision on the negative clearance/individual exemption request for the Ground Services Agreement signed between TGS Yer Hizmetleri A.Ş. and Türk Hava Yolları A.O. (15.12.2016, 16-44/707-320).

The Turkish Competition Board (“Board”) published the reasoned decision on the negative clearance/individual exemption request for the Ground Services Agreement signed between TGS Yer Hizmetleri A.Ş. (“TGS”) and Türk Hava Yolları A.O. (“THY”).

THY is an Istanbul based private company, which is regarded as Turkey’s flag carrier, operating flights to 284 spots, comprising of 43 domestic and 235 international destinations. With respect to its flight network, THY stands as the 4th company among the list of the companies which have the largest flight networks. TGS has been established as a joint venture company by THY and Havaalanları Yer Hizmetleri A.Ş. (“HAVAŞ”). It is indicated within the decision that the Board has previously approved the establishment of TGS with its decision dated 27.08.2009 and numbered 09-40/986-248.

In its decision, the Board defined the relevant market as “airport ground services market”. As for the relevant geographic market definition, the Board has referred to its previous decision dated 27.08.2009 and numbered 09-40/986-248 concerning the ground services agreement signed for a 5 years period of time, which provided that; “obtaining the Competition Board’s opinion would be necessary in order to enter into an agreement for ground services where the period of the agreement will be longer than 3 years, in the event that at the end of 5 years, THY’s need for the ground services for a specific airport exceeds 40% of the total need for ground services in that specific airport”. In light of this previous decision, the Board decided to define the relevant geographic market on the basis of each airport separately.

The Board indicated that TGS and THY have signed the ground services agreement on 26.12.2014, which will enter into force on 01.01.2015 and will be valid for 5 years, where the last two years of the agreement will be subject to the approval of Board. The Board has indicated that the first 3 years of the agreement will be over in 2018 and the period subject to the Board’s approval will begin on 01.01.2018. Pursuant to the ground services agreement signed between TGS and THY, TGS will provide THY’s ground services until the end of 2019. It is indicated in the reasoned decision that within this scope, a negative clearance pursuant to Article 8 of Law No. 4054 or individual exemption pursuant to Article 5 of Law No. 4054 is requested for the application of the ground services agreement.  

With respect to the negative clearance request, the Board once again referred to its previous decision dated 27.08.2009 and numbered 09-40/986-248. Within this scope, the Board indicated that where the period of the agreement exceeds 3 years and THY’s market share in the relevant airports exceed 40%, potential competition will be affected by this situation. It is indicated that in the event that these conditions occur, putting the agreement in force for the additional period of 2 years will conflict with the Board’s previous decision. Therefore, the Board decided that the ground services agreement could not be granted negative clearance.

Before conducting an assessment with respect to the individual exemption request, the Board has examined whether the relevant agreement could benefit from the block exemption provided by the Block Exemption Communiqué No. 2002/2 on Vertical Agreements (“Communiqué No. 2002/2). In this regard the Board found that the ground services agreement could not be considered within the scope of the block exemption, since THY’s market share exceeded the 40% market share threshold provided by Communiqué No. 2002/2.

As for the individual exemption request, the Board stated that in order for a restrictive agreement to be exempt from the application of the Article 4 of Law No. 4054, the agreement should satisfy the conditions provided under Article 5 of Law No. 4054, which are as follows:

  1. the agreement must contribute to improving the production or distribution of goods or to promoting technical or economic progress,
  2. it must allow consumers a fair share of the resulting benefit,
  3. it should not eliminate competition in a significant part of the relevant market,
  4. it should not limit competition more than what is compulsory for achieving the goals set out in sub-paragraphs (i) and (ii) above.

With respect to the first condition, the Board assessed that the implementation of the ground services agreement for an additional 2 years would have positive effects on the unit costs due to the economics of scale. In other words the ground services agreement was found to decrease the transaction costs that could arise by way of conducting a new tender for a new ground services agreement. In its decision, the Board also provided that Havaş, another undertaking in the same relevant market, stated that the extension of the agreement would not have a negative effect on the competitive environment. Therefore, the Board found that the ground services agreement fulfilled the first condition provided under Article 5.

As for the second condition, the Board found that effective and complete ground services are of importance for both the airlines companies and the consumers. Furthermore, the Board indicated that the efficiency gains provided in the application form would pass-on the consumers, since these efficiency gains are likely to bring lower prices and increased service quality, as well as ensuring the sustainability of the relevant services. In this regard, the Board found that the second condition provided under Article 5 was also satisfied.

With respect to the third condition, the Board analyzed the past 8 years’ market shares of the undertakings that are active in the ground services sector. Based on its assessment, the Board found that following TGS’s entry to the relevant market, the market shares of its competitors (i.e. Havaş and Çelebi) have shown a significant decrease, yet the relevant undertakings still pursued their activities in the relevant market. After that, the Board evaluated the relevant undertakings’ market shares which are differentiated on the basis of the airports, and found that TGS’s market shares were above %40 in IST, ESB, SAW and ADB airports, namely the airports where the ground services agreement between THY and TGS would be implemented for an additional 2 years. Subsequently the Board assessed TGS, Havaş and Çelebi’s THY sourced revenues, and found according to the past 7 years’ data that the implementation of the ground services agreement for the remaining two years would not lead to a significant change in the market. Finally, the Board found that the sector actors were in preparation for the opening of the new airport (which will start operating around 2018 – 2019) and therefore were not willing to bear the costs of attending a tender, in the event that THY conducts a tender for a new ground services agreement. Within this scope, the Board assessed that the ground services agreement fulfilled the third condition of individual exemption as well.  

Finally for the last condition, the Board found that the ground services agreement did not include any provisions that could restrict competition more than what is necessary to achieve the goals provided under the first and the second conditions. Additionally, the Board indicated that in order to (i) prevent the flights from being negatively affected by the uncertainties regarding the opening of the new airport and to (ii) ensure the continuance of current services at the same quality level, the enforcement of the agreement for the remaining 2 years was necessary. Within this scope, the Board found that the agreement also fulfilled the fourth condition of Article 5.  

In light of the above, the Board concluded that the conditions provided under Article 5 of Law No. 4054 was satisfied and therefore granted individual exemption to the implementation of the ground services agreement for an additional 2 years.

This document is not intended to create an attorney-client relationship. You should not act or rely on any information in this document without first seeking legal advice. This material is intended for general information purposes only and does not constitute legal advice. If you have any specific questions on any legal matter, you should consult a professional legal services provider.

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