JIG JV Core Principles€¦ · Joint Inspection Group Limited Last Updated 16 March 2010 . JIG Common Process JV Core Principles - JV Management Staff Training Storage, Hydrant and

Joint Inspection Group Limited Last Updated 16 March 2010

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JIG Common Process

JV Core Principles - JV Management Staff Training

Storage, Hydrant and Into-plane JVs –

Information Flow and Competition Law

Joint Inspection Group Limited Last Updated 16th March 2010 2

Training Objective

• This presentation is to be used to provide aviation fuelling Joint Venture (JV) personnel with (refresher) training on the JV Core Principles which detail requirements for JVs to control information flows to comply with competition law.

• All key JV personnel who have to handle sensitive information should regularly receive refresher training including: JV Managers, Operations Managers, Supervisors, Administrators, Accountants.

• A separate JV Core Principles Training pack is available for training aviation fuelling Operators.


Outline

• Dealing with competitors

• Management of storage, hydrant and into-plane JVs

Summary of the Italian cartel decision

Industry pro-forma “Core Principles”

Case studies

• Document preparation and best practice

• Q&A


Dealing with competitors:

• The following types of agreements or understandings between

competitors and potential competitors (e.g., competing fuel suppliers

or competing into-plane JVs at a particular airport) are illegal:

Fixing prices

Dividing markets (allocation of customers or markets)

Restricting output (limitations on capacity, output or investment,

shutdown arrangements)

Collective boycotts

Bid rigging

• Exchange of Sensitive Information between competitors which facilitates

such agreements and co-ordination of commercial activity may also be

illegal


Why do I need to know?

• Heavy fines (up to 10% of

worldwide group turnover)

• Individual criminal liability

(including imprisonment)

• Risk of being sued for damages

• Contracts rendered void

• Lengthy investigations

• Damage to relations with

governmental entities

• Drop in shareholder share price

• Disciplinary action by the

Employer

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Management of Storage, Hydrant

and Into-plane JVs


Overview of Italian Jet Fuel

Cartel decision (June 2006)

• Infringement

“multi-faceted” agreement between six oil companies to share the jet fuel supply market and prevent new operators entering the market

implemented through “an intense and continual exchange of information” including through the various into-plane joint ventures of the companies

• Fines

EUR 315.4 million between 6 oilcos

• Follow-up commitments

New management and information flow procedures for the joint ventures to be put in place


“Core Principles” – July 2008

• New compliance package proposed by major industry players for

adoption by the JVs

In part a follow-up to the Italian cartel decision, but also fully

supported by JIG

• Key points

JV Manager to have no fuel marketing role (limited exception for

spot cash sales)

JV Manager to pass information only strictly necessary for

operation of the JV to JV board directors/operation committee

members (“JV Reps”) – IN ACCORDANCE WITH THE RULES

SET OUT IN THE CORE PRINCIPLES, EXPLAINED BELOW

JV Reps to have no fuel marketing responsibilities at employer

Series of confidentiality agreements to safeguard the information

flow


JV Managers

• In addition:

• JV Managers will not be placed in marketing role in the same

“market” within 12 months of end of secondment

• JV Manager must:

Ensure operational staff are separate from commercial airline

sales / marketing activities

Ensure operational staff have a basic understanding of the Core

Principles (training slides)

Obtain written confirmation from JV Reps that they have received

training and comply with Core Principles (audit)


Confidentiality agreements

• Tier 1 – JV Operator to sign confidentiality agreement with each of the

participants and JV Co (if incorporated)

• Tier 2 - JV Manager to sign confidentiality agreement with JV Operator.

• Tier 3 - Third party JV “visitors” (e.g. auditors/technical inspectors) to sign

confidentiality agreement with JV Manager

Participant 1 Participant 2

Auditor/Inspector

JV Operator

JV Manager

2

1

3

JV Co


What is Sensitive Information?

Through

putter OILCO

AIRLINE AIRLINE AIRLINE

OILCO

INTOPLANE JV Other

Intoplane

Operators

Storage

(& Hydrant) JV “.........information relating to

actual or potential competing suppliers that may have an impact on future competitive conduct.”

Information flows


Examples of

Sensitive Information

• The identity of customers;

• Current / future prices discounts, allowances, credit terms;

• Current / future sales volumes;

• Pricing policies, price levels, price projections, price changes, differentials;

• Supply costs;

• Supply and infrastructure availability outlooks;

• Industry production changes;

• Transportation rates or rate policies for individual shipments;

• Contract bids for particular products or particular airports;

• Procedures for responding to airline bid invitations;

• Customers’ fees;

• Plans for expansion of business/marketing customers;


• Safety, health, security and environmental information

• Legislative change and compliance data

E.g., communication of new airport

authority/concession requirements likely to impact

JV operation

• JV operating and technical information.

E.g., product quality; availability of resources;

equipment operation / failures and disruption

resulting from such events

Examples of

non-sensitive information


• Dealing with historic/aggregated data where individual company data is not identifiable should be as follows:

• Information that is aggregated and/or historic may or may not be sensitive eg depending on how aged the data is; the level of aggregation; the object for which it is being gathered and disseminated; and / or the potential effect on competition.

• Save where it is expressly stated to the contrary in the Core Principles (e.g. in Sections 1&2) Sensitive Information should not be shared (even when it is historic or aggregated) by the JV operator / manager without prior legal review and approval by all JV Representatives.

• Historic means data that has ceased to be current for at least 12 months (e.g., data for contract year January – December 2005 that is not exchanged any earlier than 1 January 2007)

• But not pricing data, even if historic

Aggregated historic JV

information


What information should the JV

Manager have access to?

• The operator/manager of a storage, hydrant, or into-plane JV should be entitled to have access to all information including Sensitive Information, that is strictly necessary to ensure the safe and efficient operation of the JV –

I.e., “the information needed to do the job”

• Such information needed by the operator/manager will include the

identity of all airline customers of the JV;

individual volume of fuel supplied (or planned to be supplied) by each of the JV participants to their individual or shared customers.


What information should the JV

Manager have access to? (cont’d) • As operational JVs have no involvement in marketing and sales of aviation

fuel and lubricants, an individual participant’s

supply costs,

product prices, or

other commercial terms and conditions

should not be available to the JV operator/manager or to other participants.

• One exception is spot cash sales to customers who request aviation

product deliveries from into plane JVs without having any supply contract

with the individual JV participants or throughputters. In this instance the JV

operator/manager should request:

each supplier to make available to the operator/manager their published,

individually determined, "list price" for the aviation product in question

so that the into plane JV operator may transact such sales on their

behalf.


What information can JV Manager pass

to JV Reps and throughputters?

• JV Manager / Operator will have access to Sensitive Information but must not

become a conduit for passage of that information between competitors.

• Only “minimum level” of potentially Sensitive Information “strictly necessary”

for “shareholder stewardship” may be communicated from manager/operator

to the JV Reps. (e.g., aggregated JV volume and cost data)

• Individual JV participants and throughputters should receive only their own

volume & customer details. But, customer identities may be disclosed if:

• there are safety concerns regarding a JV participant’s airline

customer (although volumes do not need to be disclosed); or

• trade sanctions apply to a customer supplied by one of the JV

participants (consult local Law Dept.)

• There is guidance in the Core Principles for handling shared customers and

dealing with budget, operational efficiency and other issues (see below)


• The JV operator/manager should provide to the individual suppliers of an

airline customer who has split their business between several suppliers:

aggregate volume supplied to the shared customer (including volume, if

any, supplied to a shared customer by another into-plane JV)

the volume supplied by that individual supplier

the breakdown of long and short haul flights of that shared customer (if

applicable)

• From this information, individual participants should be able to ascertain

that its percentage supply obligations are being fulfilled and it is

receiving an appropriate allocation of long and short haul flights.

Handling customers with split

contracts


JV Reps under the “Core

Principles” – separation

• JV Reps not to have marketing responsibilities:-

• No involvement in commercial decisions relating to prices charged, volumes supplied or other terms negotiated with commercial airline customers.

• No account management relationship with commercial airline customers

• Exceptions:

• Relevant participant to inform co-participants

• If no satisfactory assurance provided such that co-participants are happy with “dual-role”, then legal advice obtained

• Legal advice will determine the scope of information which the JV Rep at issue will be allowed to receive

• JV Reps to have training on the Core Principles from their employers

• JV Participant Internal firewalls recommended by Core Principles

• e.g. between Participant’s Sales and Marketing Groups and other Groups such as Operations/Accounts who may necessarily have access to sensitive information where the Participant is the JV Operator


Case Study 1

• Airport authority is consulting with the JV Manager as to

future requirements for space at the airport (e.g., storage,

vehicles etc.)

• To respond fully, the JV Manager wants to consult with JV

participants and throughputters as to their likely future

supply. What is it permissible for him/her to ask for?

• What should the JV Manager do with the information

received?

In board discussions?

When reverting to the airport authority?


Case Study 1 – Model Answer

• In line with the general rule in the Core Principles, the JV Manager should only request that information which is strictly necessary to enable him/her to address issues raised by the Airport authority and related to the safe and efficient operation of the JV.

• In order to respond, the JV Manager will likely need to obtain future supply forecasts for each JV participant / throughputter. However, there is no need for the JV Manager to know (or request) how the suppliers’ forecasts are broken down by customer. Similarly, unless it is essential for the question being asked, the JV Manager does not need to know the source of the fuel or method of supplying the fuel to the airport.

• The Airport authority’s question is a legitimate topic for discussion at the meeting of the JV Board/Management Committee – an agenda should be circulated in advance of the meeting and minutes should be prepared and agreed by all attendees. The data relating to predicted future volumes should only be provided to the JV reps on an aggregated basis for the whole JV. Each participant’s individual volume forecasts should not be shared between the attendees (or passed to the throughputter).

• If the JV manager believes he/she needs to disclose sensitive data (e.g., in relation to an individual supplier’s forecast volumes) for discussion at the JV Board/Management Committee in order to be able to reach a conclusion on the matter, he/she should not do so without prior legal review.

• Following approval from the JV Board/Management Committee, in responding to the airport authority’s request, the JV Manager may provide the aggregated supply forecasts if this is necessary to be able to reach agreement on future infrastructure/facilities requirements for the JV, but it would be prudent to require the airport authority not to further circulate the data.

• Note: If the JV manager does request users’ supply forecast with customer details then the key point is that this detailed information is not passed on but aggregated into a total forecast volume. JV Managers generally will have to take an overview in case there is double counting or demand missing between individual suppliers’ forecasts.


Case Study 2

• A particular airline customer has special requirements that

stretch the available facilities / manpower of the JV (e.g.,

there is a higher cost to serve due to the nature of the

plane, or the time of the flight) and requires board input.

• How should the JV Manager handle this discussion?



• Wherever possible, the JV Manager should attempt to address this issue without reference to the JV Board/Management Committee so as to preserve the anonymity of the supplier. For example, the JV may operate a standard cost of service, and the incremental cost for the special requirements to be allocated to the supplier may be clear.

• However, if JV Board/Management Committee input is required (e.g., agreement is required as to allocation of costs between the affected supplier and other participants), the JV Manager should discuss the issue without reference to the identity of the airline or the volumes involved.

• Note: if a JV Manager does not have an automatic method of allocating cost for new business then it is recommended that the JV agrees a process in advance for dealing with this type of situation in the future.


Case Study 3

• CheapAir has leased a new fleet of second hand jets, in

relation to which the JV Manager has real HSE concerns.

• A third-party throughputter is keen to supply CheapAir

Can the JV Manager raise this issue with the JV board /

managing committee?

What details can the JV Manager share with the board?



• The JV Manager should raise this issue with the JV Board/Management Committee

• The JV Manager should first consider whether the safety issue could be discussed and resolved without identifying the supplier and customer involved to the JV Reps.

• Refusing to provide services to a customer could raise competition law concerns unless there is a legitimate objective reason for refusing to offer the service.

• In this situation it would be recommended for the JV Manager to advise the JV Board/Management Committee of the name of the airline, the objective reasons for the HSE concern and the proposed action he/she intends to take. It would not be necessary for the JV Manager to advise the JV Board/Management Committee whose customer the airline was nor the volumes involved.

• The JV Manager would need to determine what objective reasons there are for his “HSE concern” – this would generally fall into one of two categories:-

• If the HSE concern is systemic to all the aircraft operated by the airline such as the airline’s standard operating procedure does not meet Airport, CAA or JIG Guidelines (e.g. JIG 1 Clause 6.7 Fuelling/Defuelling With passengers on Board or Embarking or Disembarking) – then the JV Manager can advise the throughputter that the JV can not provide a service until the airline changes its operating procedure,

• If the HSE concern relates to a specific aircraft (e.g. a specific aircraft which has a history of venting which has not been corrected by the airline), then the JV Manager can legitimately refuse to fuel this specific aircraft until the aircraft is repaired. NB. The JV Manager must not threaten not to fuel the airline’s other aircraft until the defective aircraft is repaired – since this refusal to supply may give rise to competition law concerns.


Case Study 4

• An airline customer requests the JV Manager to ensure that

it receives invoices from its fuel suppliers showing a

separate line item for delivery charges.

• What is the appropriate way to deal with this query?



• It is legitimate for a JV to establish delivery fees charged on a throughput basis to fuel suppliers.

• It is also legitimate for a fuel supplier’s invoices to its customers to show a separate line item breaking down delivery charges.

• However, it is for the JV participant fuel suppliers to decide individually whether or to what extent they pass these delivery/operation costs to their customers, including whether they are included in the fuel price or invoiced separately. JV participants should not discuss with each other the commercial terms on which they supply fuel to their own customers.

• JV Managers should respond to the query that this is a matter for the airline’s fuel supplier and that the airline should contact its supplier directly on this issue. Reports of such queries should not be included as agenda items for the board.


Risk of sensitive information

exchange

• Risky situations:

Meetings with JV participants at:

• regular management committee or board meetings

• special meetings to discuss development issues e.g. new land lease, JV restructuring

Meetings with the JV Manager of other fuelling JVs at the airport

Meetings or communication with individual JV participants representatives or other employees of that JV participant

• If you consider it necessary to exchange information beyond the scope of the Core Principles, you must first consult legal and obtain approval from all JV participants


Document preparation

• Remember the rules about passing information to JV Reps and participants!

• Careless words, oral or written, are often decisive factors in antitrust cases

• Poorly chosen words, however unintentional:

- create APPEARANCE of impropriety

- simplify prosecution’s burden of proof

- used to show intent

- difficult and costly to explain/defend

• Would you like to read your email in the newspaper or in the published

decision of a court or competition authority?


Case Study 5

• 3 into-plane JVs operate at a major airport. Tom and Fred

are managers of 2 of the competing JVs. In the coffee

break of a meeting to discuss safety issues with the airport

authority, Fred tells Tom that his company will be raising

the fuel delivery fees charged to third party throughputters.

Fred mentions that he has had the same discussion with

Catherine (manager of the 3rd into-plane JV at the same

airport) and she will be raising fees too.

• Tom tells Fred that he is uncomfortable having this

conversation. Later Tom proceeds to raise fees at the

beginning of the following month.

• Is Tom in trouble?



• The conversation between Catherine and Fred could well give rise to an allegation that Catherine and Fred had agreed to fix prices. This is a serious infringement of the competition rules.

• Tom has acted correctly in stating that he is uncomfortable having this conversation. If the conversation topic does not change immediately, he should walk away. He should also inform his line-manager/company lawyer about the incident so that appropriate steps can be taken at a company level to protect Tom and the company.

• Tom should be cautious about the decision to raise fees. He should consult with his line-manager/company lawyer to ensure that the context of his conversation with Catherine and Fred does not mean that the decision to raise fees would likely be regarded as an illegal price fixing agreement with the JV’s competitors. This will depend, for example, on:

• whether Tom had been intending to raise fees anyway (and there are pre-existing documents/emails which prove this); or

• what Catherine and Fred had taken away from the conversation (e.g., the company lawyer by talking to his or her opposite number may discover that Catherine and Fred had made notes that they felt after the discussion that Tom “agreed” with the proposed fee rises).


Case Study 6

• Tom and Fred are managers of 2 competing storage & IP

JVs. Tom is planning a 3-day shut-down for maintenance of

key storage infrastructure operated by the JV. Tom wants

to ensure that he is not shutting down at the same time as

the only other alternative storage at the airport (operated by

Fred’s JV). Tom therefore emails Fred to tell him about his

shut-down plans.

• Is Tom in trouble?



• A potential supply disruption does not give a green light to collude with competing JV

Managers. Tom’s email to Fred risks being construed as an agreement with a competitor to

reduce availability of airfield storage (thereby driving up fuel prices). Tom should instead liaise

with the airport authority to ensure that the shutdown is at a convenient time.


Words Matter!

• Loose talk and just plain stupid words:

“As agreed, herewith “top secret” Airport JV

sales volume & customer information (for

individual participants); more to follow”

(extract from fax sent by a JV Operations

Manager in 2004)

Documents

JIG JV Core Principles€¦ · Joint Inspection Group Limited Last Updated 16 March 2010 . JIG Common Process JV Core Principles - JV Management Staff Training Storage, Hydrant and