1

MA IN AVIATION LAW AND AIR TRANSPORT

MANAGEMENT

PROJECT TOPIC: LEGAL IMPLICATIONS OF AIRLINE BANKRUPTCIES

(CASE STUDIES AND LESSONS)

By
Vikram Singh
MAALATM84LA_23
Year 2024 Semester 4

NALSAR UNIVERSITY OF LAW

HYDERABAD
 2

INDEX

Sr No. HEADING Page

Nos.

1. 3-8
1.0 INTRODUCTION

1.1- BACKGROUND OF THE STUDY

1.2- STATEMENT OF THE PROBLEM
1.3- RESEARCH QUESTIONS
1.4- HYPOTHESES

2. 2.0 RESEARCH METHODOLOGY 9-12

2.1- RESEARCH PLAN

3. 3.0 CASE LAW & CASE STUDY 13-19

3.1 CASE 1: Uniglobe Mod Travels Pvt. Ltd. v. Travel Agents Federation
of India and Others

3.2 CASE 2: Jet Airways

4.0 CONCLUSION
4. 20

BIBLIOGRAPHY & REFERENCES

5. 21
 3

CHAPTER 1: INTRODUCTION

The airline industry has long been characterized by its turbulent nature, with numerous companies
facing financial distress and bankruptcy throughout its history. This phenomenon raises important
legal questions and implications that have far-reaching consequences for both stakeholders and the
industry as a whole. This project aims to explore the legal dimensions of airline bankruptcies through
the analysis of case studies.

At the heart of the issue lies the tension between the economic realities of the industry and the legal
frameworks that govern it. As exemplified by Warren Buffet's candid remarks, the airline business is
notorious for its capital-intensive nature, volatile market conditions, and susceptibility to external
shocks such as terrorist attacks and natural disasters. These factors can place immense strain on
airlines' financial viability, leading to bankruptcies and insolvencies. One of the key legal implications
of airline bankruptcies is the treatment of creditors and stakeholders. When an airline declares
bankruptcy, creditors must navigate complex legal processes to recover their debts, often resulting in
significant losses. Similarly, employees may face uncertainty regarding their job security and
entitlements, highlighting the need for robust legal protections and regulations (Impact of Airline
Bankruptcy on Hub Airports, Airport Systems and U.S. 2003)

Furthermore, airline bankruptcies raise important questions about regulatory oversight and consumer
protection. Passengers who have booked flights with bankrupt airlines may find themselves stranded
or facing financial losses, prompting calls for enhanced consumer rights and compensation
mechanisms. Additionally, regulatory bodies must grapple with the challenge of balancing industry
stability with market competition and innovation. (Ciesluk 2011).

The legal implications of airline bankruptcies, particularly in light of the Insolvency and Bankruptcy
Code (IBC) in India, present significant challenges for stakeholders. The IBC, while effective in
expediting the Corporate Insolvency Resolution Process (CIRP) and prioritizing creditors' interests,
falls short in addressing the complexities of the aviation sector. Aircraft, being capital-intensive
assets, incur substantial maintenance costs when grounded for extended periods. The IBC's 180-day
 4

moratorium on enforcing security interests or repossessing assets, as stipulated in Section 14(d), can
be detrimental for lessors and creditors in the aviation industry. Despite provisions for interim
resolution professionals to protect and preserve the corporate debtor's property, as per Section 20,
instances like the grounding of all Jet Airways flights for over a year due to financial constraints
demonstrate the challenges faced in practice.

Moreover, the Cape Town Convention and Protocol offer a more streamlined approach, allowing
security holders to repossess assets after a two-month waiting period. This may prove more effective
in minimizing losses for creditors with interests in capital assets. However, the issue of cross-border
insolvency further complicates matters, as many aircraft leasing agreements are international. While
Sections 234 and 235 of the IBC aim to address cross-border insolvency disputes, their effective
implementation remains a challenge.

Overall, the legal implications of airline bankruptcies underscore the need for sector-specific
regulations that balance the interests of creditors, lessors, and other stakeholders while ensuring the
efficient resolution of insolvency proceedings. Through the analysis of case studies, this paper will
shed light on the various legal issues and challenges associated with airline bankruptcies. By
examining the strategies employed by airlines, creditors, and regulatory bodies, valuable lessons can
be drawn to inform future legal frameworks and practices. Ultimately, this exploration aims to
contribute to a deeper understanding of the legal implications of airline bankruptcies and facilitate
informed decision-making within the industry (Rasmussen 2009).

1.1 BACKGROUND OF THE STUDY

Bankruptcy and Challenges in the Airline Industry: A Global Perspective

Bankruptcy in the airline industry, both for publicly listed and privately listed companies, has become
increasingly common worldwide. Typically, airlines declare bankruptcy due to liquidity issues,
running out of cash to cover their liabilities. This leads to insolvency, where the airline shuts down
and sells its assets to repay its debts. Often, airlines seek voluntary administration to escape
insolvency, where a third party helps manage their finances and debt repayment. However, these
processes are complex, lengthy, and costly.
 5

Bankruptcy in airlines can be caused by various factors, including low cash reserves, years of
struggling to achieve profitability, and the denial of government bailouts. One of the core issues
leading to liquidation in airlines is cost control. Legacy airlines face challenges with high costs
compared to budget airlines, particularly due to fuel costs and administration costs. Legacy airlines
also struggle with labor relations, often facing pressure from higher wages and employment benefits.

The airline industry is highly competitive, with low-cost carriers dominating the market due to their
cost leadership and operational strategies. They offer lower ticket prices, along with programs like
frequent flyer programs and corporate discounts, to attract and retain customers. This has significantly
reduced the customer base for legacy airlines. Legacy airlines, on the other hand, face higher
operational costs at hub airports, further impacting their profitability (Most airlines face bankruptcy
by end of May, industry body warns. 2020).

Exogenous events, such as natural disasters, terrorism, and political instability, also significantly
impact the airline industry, affecting customer demand and operational expenses. The COVID-19
pandemic, in particular, has had a severe impact on the airline industry, leading to a drastic reduction
in air travel demand globally. Airlines were forced to suspend flights, close routes, ground planes,
and lay off workers due to the lack of demand. The overall income of the airline industry fell by 80%,
leading to the shutdown or consolidation of operations.

Looking ahead, the airline industry faces significant challenges in recovering from the COVID-19
pandemic. While the International Air Transport Association (IATA) is confident about the long-term
future of the industry, estimating a growth of 20% from 2019 to 2025, this will be the lowest growth
rate in the history of global aviation over a six-year period. Airlines need to focus on efficient
structuring and adapt to changes to stand out in this volatile market.

Legal Implications of Airline Bankruptcies: A Closer Look at Regional Airlines in the U.S. (1995-
2017)

The bankruptcy and shutdown of regional airlines in the U.S. between 1995 and 2017 had significant
legal implications, especially in smaller cities reliant on regional airports1. These cities, with airports

1
“Bankruptcy and product-market competition: Evidence from the airline industry.” International Journal of Industrial
Organization, 30 (6),
564 – 577.
 6

served exclusively by regional airlines, felt the impact more keenly compared to larger metropolitan
areas with multiple airports served by legacy or network low-cost carriers (Cartney September 16,
2005). The legal frameworks governing these bankruptcies varied across jurisdictions, adding
complexity to the situation.

Operational restructuring, a common strategy in such scenarios, involved various initiatives such as
cost-cutting, cash management, route and fleet review, management enhancement, corporate
reorganization, and consolidation. Cash management was crucial due to the high cash burn rate of
airlines, and cost-cutting measures were necessary to align expenses with reduced demand. Route and
fleet reviews helped airlines identify profitable routes and optimize aircraft utilization1.

The ownership structure of airlines also played a role, with bankruptcies of wholly owned regional
affiliates impacting differently from independently operated ones. Airlines often had to negotiate with
creditors to reduce debt through compromises, renegotiate financing and leasing terms, or seek new
funding. Some airlines underwent corporate reorganization, splitting into leaner entities to improve
efficiency.

The impact of airline bankruptcies extended beyond the airlines themselves, affecting industries like
tourism, hospitality, and manufacturing. For example, suppliers of bankrupt airlines faced significant
losses, while consumers generally experienced more contained losses. These bankruptcies also had
implications for investors, with stock performance of bankrupt airlines' competitors suffering during
the filing process but improving upon emergence from bankruptcy.

Overall, airline bankruptcies had far-reaching legal implications, affecting various stakeholders and
industries beyond the airlines themselves. Understanding these implications was crucial for
navigating the complex landscape of airline restructuring and bankruptcy.

1
; R. Gritta, Bankruptcy Risks Facing the Major U.S. Airlines, 48 J. OF AIR L.
& COM. 90 (1982) (prediction that conservatively financed airlines through the issuance of
stocks, were able to survive and liberally-financed companies that acquired capital through assumption of debt, would
fail)
 7

1.2 . STATEMENT OF PROBLEM

The airline industry is highly competitive, with low-cost airlines posing a significant challenge to
traditional carriers. Despite historic losses and challenges, new airlines continue to enter the market,
indicating a willingness of capital providers to finance aircraft. However, the industry's high fixed
costs and low variable costs make it difficult for airlines to reduce capacity, leading to fierce
competition and pricing pressures. Moreover, the industry is susceptible to external shocks, such as
economic downturns, terrorist attacks, and health crises, which can have a devastating impact on
airline finances. These factors, combined with the cyclical nature of demand for air travel, create a
volatile operating environment for airlines.

These challenges raise important legal implications for airline bankruptcies. As airlines struggle to
remain profitable in a competitive market, understanding the legal frameworks and implications of
bankruptcy filings is crucial for stakeholders, including creditors, employees, and passengers. This
paper will explore the legal ramifications of airline bankruptcies, using case studies and industry
insights to provide a comprehensive analysis of the issue.

1.3 RESEARCH QUESTIONS:

1. What are the key legal implications of airline bankruptcies on stakeholders such as creditors,
employees, and passengers?
2. What role do government regulations and interventions play in airline bankruptcies, and how
do they influence the outcomes?
3. What legal frameworks govern airline bankruptcies, and how do they vary across different
jurisdictions?
4. How do airline bankruptcies impact the broader economy, including related industries such as
tourism, hospitality, and manufacturing?
 8

1.4 HYPOTHESIS:

It is hypothesized that airline bankruptcies have significant legal implications on stakeholders,

including creditors, employees, and passengers. Government regulations and interventions are
expected to play a crucial role in shaping the outcomes of airline bankruptcies, with varying effects
across jurisdictions. The legal frameworks governing airline bankruptcies are likely to differ across
jurisdictions, impacting the rights and priorities of stakeholders. Furthermore, it is anticipated that
airline bankruptcies can have far-reaching effects on the broader economy, including industries such
as tourism, hospitality, and manufacturing, highlighting the need for comprehensive analysis and
understanding of these implications."
 9

CHAPTER 2 : RESEARCH METHODOLOGY

In this project descriptive and critical analysis method is followed throughout the paper. The study is
based on both primary and secondary data. Primary data being the Statutes, Cases and Books while
secondary data being the articles, blogs, websites, journals, which have been used to conduct the
research. All the data have been used to understand the current scenario with regards to the airline
bankruptcies and its impact on law.

1. Key Legal Implications of Airline Bankruptcies on Stakeholders:

Creditors: Airlines often accrue substantial debts, particularly in areas such as aircraft financing, fuel
procurement, and labor costs. During bankruptcy, creditors face the challenge of recovering their
investments, which can be complex due to the international nature of airline operations. Negotiating
compromises with creditors becomes crucial for distressed airlines to secure their survival. Depending
on the jurisdiction, creditors may be classified into different classes, such as secured, unsecured, and
priority creditors, each with varying rights and priorities in the bankruptcy process.
Employees: Airline bankruptcies can lead to significant workforce reductions, wage cuts, and
uncertain job security, especially for employees represented by labor unions. Rebuilding trust and
morale among employees is critical for maintaining operational stability during and after bankruptcy
proceedings. Employment contracts, severance packages, and employee benefits are often subject to
review and renegotiation during bankruptcy, impacting the livelihoods of airline workers.
Passengers: Bankruptcies can disrupt travel plans, result in service interruptions, and affect passenger
confidence in the airline's reliability. Passenger rights, including refunds, compensation for disrupted
travel, and protection of frequent flyer miles, may be subject to legal scrutiny during bankruptcy
proceedings. Ensuring passenger safety, comfort, and satisfaction becomes paramount for airlines
seeking to retain customer loyalty amid financial turmoil.
Suppliers and Service Providers: Bankruptcies can have ripple effects on suppliers and service
providers, such as aircraft manufacturers, fuel suppliers, and maintenance providers. These
stakeholders may experience delayed payments, contract renegotiations, or the loss of a significant
customer, impacting their own financial stability. Managing relationships with suppliers and service
providers is crucial for airlines to maintain essential operations and support functions1.

1
Tracing the woes: An empirical analysis of the airline industry.”
American Economic Journal: Microeconomics, 2 (3), 1–43.
 10

Shareholders: Shareholders of bankrupt airlines often face substantial losses as the value of their
investments diminishes or becomes obsolete. Stock prices may plummet, and dividends may be
suspended, leading to financial hardship for investors. Bankruptcy proceedings can also involve the
issuance of new shares or the conversion of debt into equity, further diluting the value of existing
shares.
Regulatory Authorities: Regulatory bodies play a crucial role in overseeing airline bankruptcies,
ensuring compliance with safety standards, consumer protection laws, and aviation regulations.
Authorities may intervene to protect passenger rights, maintain operational integrity, and oversee
restructuring efforts to safeguard the interests of all stakeholders.

2.Role of Government Regulations and Interventions in Airline Bankruptcies:

Regulatory Oversight:
Governments regulate various aspects of the airline industry, including safety standards, route
allocations, and labor relations. Regulatory bodies may intervene in bankruptcies to protect passenger
rights, ensure continuity of essential services, and oversee restructuring efforts to mitigate the impact
on the broader economy.

Financial Assistance:
Governments may provide financial support or incentives to distressed airlines to prevent operational
disruptions, preserve jobs, and safeguard national interests. Bailout packages, loan guarantees, and
regulatory waivers are common forms of government intervention during airline crises, aiming to
stabilize the industry and prevent systemic failures.

Legal Frameworks:
Insolvency laws and bankruptcy procedures vary across jurisdictions, influencing the outcomes of
airline bankruptcies. Governments play a role in shaping and enforcing these legal frameworks to
facilitate restructuring or liquidation of airlines in financial distress. Cross-border considerations add
complexity to airline bankruptcies, requiring international cooperation and coordination among
regulatory authorities.

Airline bankruptcies have far-reaching legal implications, affecting stakeholders such as creditors,
employees, passengers, suppliers, shareholders, and regulatory authorities. Government regulations
 11

and interventions play a crucial role in mitigating the impact of bankruptcies on the aviation industry,
ensuring the safety, security, and stability of airline operations. Understanding the legal frameworks
governing airline bankruptcies is essential for stakeholders to navigate the complexities of insolvency
proceedings and protect their interests in this dynamic and challenging industry.

Repercussions of Airline Bankruptcies on the Broader Economy:

The impact of airline bankruptcies extends beyond the aviation sector, affecting related industries
such as tourism, hospitality, and manufacturing. When airlines go bankrupt, it disrupts travel plans,
reduces air connectivity, and can lead to a decline in tourism. This, in turn, affects hotels, restaurants,
tour operators, and other businesses that rely on tourist spending. (Airlines body IATA suspends Jet
Airways from clearing house membership. 2019)

The manufacturing sector is also impacted, especially aircraft manufacturers and suppliers, who may
face reduced demand for new aircraft and parts. Additionally, airline bankruptcies can lead to job
losses not only in the aviation industry but also in sectors closely linked to it, such as retail,
transportation, and services. Overall, airline bankruptcies can weaken economic growth and stability,
particularly in regions heavily reliant on air travel for tourism and trade.

Variation in Legal Frameworks Governing Airline Bankruptcies:

Legal frameworks governing airline bankruptcies vary across different jurisdictions, influencing the
outcomes and processes involved. Some countries have well-developed insolvency laws that facilitate
business rescue and restructuring, such as Chapter 11 in the United States.

In contrast, other jurisdictions may have less developed or flexible insolvency regimes, making it
challenging for airlines to restructure or reorganize effectively. This can lead to differences in the
treatment of creditors, the availability of financing, and the ability to negotiate with stakeholders.
International insolvency practices, such as the UNCITRAL Model Law on cross-border insolvency,
provide additional options for airlines facing bankruptcy in multiple jurisdictions. These frameworks
aim to harmonize insolvency proceedings and facilitate cooperation among different legal systems,
ensuring a more coordinated and efficient resolution of airline bankruptcies on a global scale.
 12

2.1 RESEARCH PLAN:

The researcher will achieve the objective by analysing the literature through the following chapters:

1. INTRODUCTION

2. FACTS OF THE CASE:

3. ISSUES

4. JUDGEMENT

5. REASONING OR ANALYSIS

6. CONTRIBUTION OF THE CASE TO AVIATION LAW

 13

CHAPTER 3 : CASE LAW & CASE STUDY

Introduction
Over the past decade, the Indian aviation sector has experienced steady growth, with an
average annual increase of 13.8 percent. Despite this growth, the sector attracted only $570
million in Foreign Direct Investment (FDI) from 2000 to 2015. In 2013-2014 alone, Indian
airports served 168.92 million passengers and handled 2.28 million tons of cargo, highlighting
their significant capacity. However, by 2019, this capacity had significantly decreased, with
Jet Airways, the country's second-largest airline, facing financial turmoil. Naresh Goyal, the
airline's founder and chairman, stepped down in March 2019 as a result of the financial crisis.
With less than five operational aircraft, Jet Airways was compelled by the Indian Directorate
General of Civil Aviation to halt all international flights in April 2019. Despite efforts to
secure emergency funding of $56 million, the airline was forced to suspend all domestic and
international operations later that month.

Case Law:
The case of Uniglobe Mod Travels Pvt. Ltd. v. Travel Agents Federation of India and Others
1
involves a boycott by travel agents' associations against international airlines due to a change
in the fee structure from commission-based to transaction-based. One of the members of the
Travel Agents Federation of India (TAFI), the informant in this case, did not comply with the
boycott and was subsequently expelled from the association. The informant then filed a case
under the Competition Act, 2002, alleging violations by TAFI.

This case is relevant to the legal implications of airline bankruptcies as it illustrates how
financial pressures on airlines can lead to changes in business models, including commission
structures for travel agents. Airlines facing financial difficulties may seek to reduce costs by
changing their fee structures, potentially leading to disputes with travel agents and legal
challenges. Understanding the competition law aspects of such disputes is crucial for both
airlines and travel agents to navigate these issues effectively and ensure compliance with
relevant regulations.

1
Uniglobe Mod Travels Pvt. Ltd vs Travel Agents Association Of India & ... on 4 October, 2011
 14

2. Facts of the Case:

Uniglobe Mod Travels Pvt. Ltd., a travel agency based in India, initiated legal action against
the Travel Agents Federation of India (TAFI) and other trade associations under the
Competition Act, 2002. The dispute arose from a boycott orchestrated by TAFI and other
associations against several international airlines, including Singapore Airlines. The trigger
for the boycott was the airlines' decision to transition from a traditional commission-based fee
structure to a transaction-based model.

The move towards transaction fees prompted aggressive action from trade associations,
including TAFI, which issued directives urging members to boycott the affected airlines.
Uniglobe Mod, a member of TAFI and other associations, opted not to participate in the
boycott. In response, TAFI threatened Uniglobe Mod with suspension and expulsion from the
association.

Uniglobe Mod challenged its suspension in the Delhi High Court, alleging that TAFI's actions
constituted a collective boycott and violated competition laws. The company argued that
TAFI's directives restricted the supply of Singapore Airlines tickets, thereby harming
competition in the market. This case sheds light on the significant role of travel agents in the
Indian aviation sector, where approximately 90% of airline tickets are booked through
agencies. The shift from commission-based to transaction-based fee structures by airlines, a
trend observed globally, has led to tensions between airlines and travel agencies. These
tensions have raised concerns about potential anti-competitive practices by trade associations,
prompting scrutiny from competition authorities.1

In response to Uniglobe Mod's complaint, the Competition Commission of India referred the
matter to the Director General for investigation, citing potential violations of competition
laws. This case underscores the importance of examining the activities of trade associations
to ensure compliance with competition regulations and safeguard market competition.

1
Gerstell, Hoff-Patrinos and Morgan, Alternatives to Chapter 11 and Contingency Planning for a Chapter 11 Filing in
Aviation Indrustry Bankruptcy Issues, 43 COM. L. & PRAC. 391
(1986) [hereinafter Alternatives to Chapter 11]
 15

3. Procedural Aspects

The Director General (DG) conducted an investigation into the matter of airline commission
reductions and boycotts, submitting a report to the Commission on 16.12.2009. During the
investigation, the DG requested information from the Travel Agents Federation of India
(TAFI) and Singapore Airlines regarding the boycott's impact and background on commission
payments to travel agents. Statements were recorded from key individuals, revealing that
travel agents received notices of commission reductions from various airlines in 2008. TAFI,
along with other travel agents associations, pressured airlines to restore commission rates.
While domestic airlines agreed to a reduced commission, foreign airlines, including Singapore
Airlines, did not comply, leading to a boycott call by TAFI and others. This boycott involved
emails, advertisements, and threats of suspension/expulsion for non-compliance.

The DG concluded that the boycott constituted an agreement violating competition laws. The
Commission reviewed the DG's report and granted parties the opportunity to respond and
present their cases. TAFI, TAAI, and IAAI denied the allegations, arguing against the
Commission's jurisdiction and presenting counterarguments about airline practices. TAAI
contested the DG's conclusions, citing procedural irregularities and lack of evidence. IAAI
emphasized the illegality of commission reductions and the adverse effects on competition.
The Commission determined that further inquiry was necessary and directed the DG to submit
a supplementary report covering detailed aspects of the associations' roles, financial
implications, and the impact on competition.

The Competition Commission of India (CCI) conducted an investigation into allegations of

anticompetitive practices by several travel agents associations in India, including the Travel
Agents Association of India (TAAI), the Indian Association of Tour Operators (IATO), the
Indian Association of Airline Representatives (IAAI), the Enterprising Travel Agents
Association (ETAA), and the Association of Domestic Tour Operators of India (ADTOI),
collectively referred to as the associations. The investigation focused on allegations that these
associations had engaged in a boycott of Singapore Airlines and Silk Air, which resulted in
an appreciable adverse effect on competition in the market for air travel services.
 16

The CCI found that the Directorate General (DG) of the CCI, after conducting a detailed
investigation, concluded that the associations had indeed engaged in anticompetitive behavior.
The DG found evidence that TAAI, IAAI, and TAFI had issued a boycott call against
Singapore Airlines and Silk Air, leading to a decline in the availability of tickets of these
airlines to consumers. The DG also found that ADTOI, IATO, and ETAA were not actively
involved in the boycott and did not contribute significantly to the decline in ticket sales of the
airlines.

The associations, in their responses to the DG's findings, argued that their actions were
justified as a form of peaceful collective bargaining to protest against the airlines' zero
commission policy. They also argued that the boycott had not driven Singapore Airlines out
of the market and that consumers had not been adversely affected by the boycott. The
associations further contended that the DG's investigation was flawed and had not considered
all relevant factors. The CCI, after considering the DG's supplementary investigation report
and the responses of the associations, upheld the DG's findings and concluded that the
associations had violated the provisions of the Competition Act, 2002. The CCI directed the
associations to cease their anticompetitive practices and imposed penalties on them for their
actions.

In considering the present matter, it is important to look at case laws from other jurisdictions
to gain different perspectives and principles that have emerged in those countries regarding
relevant issues. It should be noted that while these case laws may provide some guidance, they
may not be directly applicable due to differences in laws. Here are some key points from the
case laws of the United States and the European Union:

United States:

 U.S. Courts have condemned group boycotts or concerted refusals by traders to deal with
other traders, even if they were reasonable or led to lower prices.

 The U.S. Supreme Court has held that such agreements restrict the freedom of traders and
restrain their ability to sell as they choose.

 Cases like Klor's, Inc. v. Broadway-Hale Stores, Inc. demonstrate that group boycotts can
have a monopolistic tendency and are not tolerated under the Sherman Act, even if the victim
is a small business.
 17

European Union:

 The European Commission has addressed prohibition decisions for competition infringements
involving trade associations and their members, sometimes imposing fines on the associations.

 Decisions of associations, agreements, and concerted practices among undertakings are

interpreted widely in the EU. Even unwritten agreements or "gentlemen's agreements" can be
considered as agreements.

 The case of French Beef shows that while unions can defend their members' interests, they
cannot use freedom of association to justify violating competition rules.

Indian Context (under MRTP Act, now repealed):

 In India, under the MRTP Act, boycott calls given by trade associations are considered per se
restrictive trade practices.

 Cases like Vinod Chopra v. Film Makers Combine and Johnson & Johnson Ltd. v.
Maharashtra State Chemists & Druggists Association have held that boycotts of certain
products or businesses by trade associations are restrictive trade practices.

4. Issues:

The case revolves around whether the actions of travel agency associations in boycotting the
sale of Singapore Airlines tickets violated Section 3 of the Competition Act, 2002. The key
issues are:

1. Jurisdiction of the Competition Commission of India (CCI): The CCI has the right to
investigate matters impacting competition, even on its own initiative, and can pass orders
if any infringement is revealed.

2. Whether the boycott constituted a violation of Section 3:

The associations denied issuing a boycott directive, but evidence suggests otherwise.
Emails, circulars, and statements indicate a concerted effort to boycott Singapore Airlines.
This included directives to members, suspension and expulsion threats for non-compliance,
and advertisements advocating the boycott. The associations' actions aimed to pressure
Singapore Airlines to meet their demands for fair remuneration.
 18

5. Ratio Decidendi

The judgment holds that the travel agents associations, including TAFI, TAAI, and IAAI,
called for a boycott against selling tickets for Singapore Airlines. The associations claimed
that this action was in response to Singapore Airlines abolishing the commission payable to
travel agents. The judgment disagrees with the Directorate General's (DG) finding that other
associations like IATO, ADTOI, and ETAA were not involved in the boycott call, noting that
the names and logos of these associations appeared on communications supporting the boycott
and that they participated in meetings about it.

The judgment finds that the boycott had a significant impact on consumers, as a vast majority
of airline tickets in India are sold through travel agents. It explains that in India, consumers,
especially those in non-metro areas, are more dependent on travel agencies due to limited
internet penetration for booking tickets. The judgment cites emails from TAFI and statements
from TAFI's National General Secretary to illustrate the impact and the associations' control
over ticket sales.

Regarding the legality of the commission payment, the judgment clarifies that it is not the
focus of the inquiry and that the boycott cannot be justified by changes in commission
structures. The judgment discusses the definition of an "enterprise" under the Competition
Act, stating that the associations fall under this definition and are subject to the Act's
provisions. It rejects the argument that the boycott was a form of collective bargaining, as it
did not benefit consumers.

The judgment also addresses various other arguments raised by the associations, including the
reliability of data used by the DG and the contention that the boycott did not harm competition.
It concludes that the boycott was anti-competitive and violated the Competition Act. The
judgment finds that TAFI, TAAI, and IAAI contravened section 3(3)(b) of the Act, and IATO,
ADTOI, and ETAA supported the boycott, violating section 3(1) of the Act.

Case Study 2:
Jet Airways' journey from its inception in April 1992 to its eventual bankruptcy in 2019 is a
tale of rapid growth, strategic acquisitions, and financial challenges. Initially focusing on the
 19

tax business, Jet Airways expanded into full-scale airline operations in 1995, supported by
capital from Tail Winds, a company founded by Naresh Goyal and his children. Over the
years, the airline expanded its operations, offering international flights in 2004 and going
public in 2005. The acquisition of Air Sahara in 2007 further solidified Jet Airways' position
as India's largest airline by market share until 20121.

Despite starting with just 12 domestic destinations, Jet Airways quickly rose to become the
country's second-largest private airline, carrying 1.7 million passengers in 1994. Ownership
of the company shifted to Tailwinds International in 1994, with Naresh Goyal retaining a
majority stake. Significant aircraft orders, including Boeing 737-400s and 737-800s, fueled
Jet Airways' expansion, allowing it to operate 12 Boeing 737 aircraft by 1996-97, serving 83
daily flights to 23 domestic destinations and carrying 2.4 million customers.

Changes in Indian aviation regulations in 1997 forced Jet Airways to separate from its foreign
investors, consolidating control under Naresh Goyal. Despite facing financial losses for the
first time in 2001-2002 due to falling demand and rising costs, Jet Airways continued to
expand its fleet and international operations. However, financial challenges persisted, leading
to the postponement of significant aircraft orders and eventual bankruptcy in 2019.

Jet Airways' bankruptcy highlights the challenges faced by airlines 2 in a competitive and
volatile industry. Despite its initial success and rapid expansion, the airline struggled to adapt
to changing market conditions, regulatory changes, and financial pressures. The case of Jet
Airways underscores the legal implications of airline bankruptcies, including creditor rights,
regulatory oversight, and the impact on employees and passengers. As Jet Airways navigates
the complexities of bankruptcy proceedings, it serves as a cautionary tale for the airline
industry and underscores the importance of effective risk management and financial planning.

1
Jet Airways completes 20 years of operations on Sunday. Retrieved from
https://www.indiatoday.in/business/india/story/jet-airways-completes-20-years-of-operations-on-sunday-
161977-2013-05-06.
2
4 Reasons Why Airlines Are Always Struggling. Retrieved from https://www.investopedia.com/financial-
edge/0510/4-reasons-why-airlines-are-always-struggling.aspx
 20

CHAPTER 4 : CONCLUSION

The legal consequences of airline bankruptcies are multifaceted, impacting various

stakeholders and necessitating a thorough review of regulatory responses and legal precedents.
By analyzing case studies and the insights gained, several key conclusions can be drawn.

Firstly, airline bankruptcies have significant implications for employees, creditors,

shareholders, and passengers. Employees may face job uncertainties, while creditors may
struggle to recover their debts. Shareholders often suffer losses in their investments, and
passengers may experience disruptions to their travel plans. Additionally, regulatory
responses to airline bankruptcies play a crucial role in determining outcomes for stakeholders.
Regulations pertaining to bankruptcy proceedings, airline operations, and consumer protection
can affect asset distribution and passenger compensation. (Y. 2011)

Furthermore, legal precedents established in airline bankruptcy cases can have lasting effects.
Court rulings and legal interpretations can establish guidelines that influence future
proceedings and the handling of similar cases.

In conclusion, the legal impacts of airline bankruptcies are intricate and require a nuanced
understanding of bankruptcy law, aviation regulations, and consumer protection laws. By
studying case studies and learning from past airline bankruptcies, policymakers, regulators,
and stakeholders can better prepare for and mitigate the consequences of future airline
insolvencies
 21

BIBLIOGRAPHY & REFERENCES

1. “Airlines body IATA suspends Jet Airways from clearing house membership.” The Week, 2019.

2. Cartney, Scott Mc. ““The Middle Seat: Why Bad News for Airlines Is Good News for Fliers -
Atleast in the Short Term.” The Wall Street Journal, September 16, 2005.

3. Ciesluk. “What Causes An Airline To Go Bankrupt?” 2011.

4. “Impact of Airline Bankruptcy on Hub Airports, Airport Systems and U.S. .” U.S. Dep't of
Transp., , 2003.

5. “Most airlines face bankruptcy by end of May, industry body warns.” The Financial Times,
2020.

6. Rasmussen, Doughlas G. Baird & Robert K. “The End of Bankurptcy .” John M. Olin Law &
Economics Working Paper No. 173, 2009.

7. Y., Peter. “Bankruptcy analysis with method of Z-score Altman, Springate.” 2011.