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27 November 2008
The aviation industry is based on a large number of agreements between air carriers. Technical agreements between carriers relating to, among other things, security, ground handling, maintenance and aircraft repair all facilitate the existence of air transportation. Commercial agreements between air carriers, such as interline and code share agreements, form the air transportation network and dramatically expand the number of destinations available to consumers.
In the past, agreements between air carriers regarding international transportation were immune from Israeli antitrust scrutiny, regardless of their effect on competition. In 2006 Parliament amended the antitrust law and annulled the antitrust immunity granted to agreements between air carriers. The amendment will come into effect on January 1 2009.
The Antitrust Law establishes a licensing regime with regard to restrictive arrangements. Generally, any arrangement that falls within the scope of the broad definition of ‘restrictive arrangement’ set out in Section 2 of the Antitrust Law must be authorized in advance by the Antitrust Court or exempted by the antitrust commissioner. The definition of ‘restrictive arrangement’ is so broad that it includes almost every agreement between air carriers. To avoid these undesired licensing requirements, the amendment stated that the antitrust commissioner would publish a block exemption for agreements between air carriers which pose no competitive risk. Accordingly, on October 30 2008 the antitrust commissioner published the Block Exemption for Agreements between Air Carriers.(1)
The block exemption touches upon various kinds of agreement, including:
The block exemption differentiates between technical agreements, which are normally not required to meet particular conditions in order to be exempted, and commercial agreements (eg, lease, interline or code share agreements), which must meet particular requirements in order to be exempted under the block exemption.
For example, the block exemption does not apply to long-term wet lease or lease agreements made between Israeli air carriers, or certain cargo and passenger agreements which contain block space provisions. In addition, the block exemption’s applicability to code share agreements is dependent on numerous conditions, which in practice makes it difficult to apply the block exemption to code share agreements between actual competitors, regardless of their reasonable impact on competition.
However, such an outcome is undesired and may impose unwarranted costs on code share agreements. While economic literature argues that code share agreements may raise antitrust concerns in certain circumstances, the notion that there is an inherent antitrust concern in code share agreements made between competitors is not supported by empirical studies.
Given the wide variety of agreements in the airline industry and the different competitive outcomes that such agreements may yield in changing circumstances, competition would have been better served if the block exemption had included a general provision which exempted agreements between air carriers that do not significantly endanger competition. Such a provision would have minimized the risk of excessive and inefficient regulation with regards to agreements which may not fall neatly within the different categories and conditions set out in the block exemption, but pose no antitrust risk.
For further information on this topic please contact David Tadmor, Shai Bakal or David Gideoni at Tadmor & Co by telephone (+972 3 684 6000) or by email (firstname.lastname@example.org or email@example.com or firstname.lastname@example.org).
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