European Commission grants antitrust approval for Air China and Cathay Pacific cargo joint venture

On 17 June 2010, the European Union ("EU") antitrust regulator approved a proposed joint venture by Air China Limited ("Air China") and Cathay Pacific Airways Limited ("Cathay Pacific") in the air cargo sector. In a press release, the European Commission ("Commission") stated that "the transaction would not raise competition concerns" and therefore granted regulatory clearance for the EU market.

The transaction examined by the Commission consists of the acquisition by Cathay Pacific of rights giving control over 49% of the (direct and indirect) interests in Air China Cargo (the "Joint Venture"). Conversely, Air China will reduce its equity holding in Air China Cargo from 100% to 51%.

Cathay Pacific notified the transaction to the Commission under the EU Merger Regulation on 10 May 2010, and the Commission issued clearance at the end of its standard phase 1 procedure. The clearance decision lifts the suspensory effect that the Commission procedure had on the closing of the transaction.

The Merger Regulation gives the Commission jurisdiction to examine transactions -- including certain types of joint ventures -- by parties incorporated or headquartered outside the EU, provided that the sales revenues in the EU of the parties' corporate groups exceed certain thresholds. Thus, although Air China, Cathay Pacific and the Joint Venture are all located in the People's Republic of China, the sales revenue thresholds were met and hence notification to the Commission became necessary.

Mergers, acquisitions and joint ventures may also need to be reported to the US Federal Trade Commission and the Department of Justice if the transactions or the parties to the transactions -- even if they are foreign entities-- meet certain size requirements and no exemptions apply. If so, both parties must file a pre-merger notification and observe a 30-day waiting period before closing.

As part of their push into overseas markets, Chinese companies now fall regularly under antitrust scrutiny by foreign regulators, in the EU, the US and beyond. Not surprisingly, merger control now forms a significant part of the regulatory compliance procedures Chinese companies need to go through to complete their on-shore and off-shore transactions.

As the Air China/Cathay Pacific cargo transaction illustrates, in the vast majority of cases, merger clearance by foreign antitrust regulators can be obtained in a well-established process and within a relatively short timeframe.

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