Wall Street Journal (11.9.10)

EU Fines Airlines $1.11 Billion in Cartel Case

BRUSSELS—The European Commission on Tuesday fined 11 airlines a total of €799 million ($1.11 billion) for forming a global cartel to fix air-freight tariffs, mainly fuel surcharges, ending an investigation that dragged on for years with the fourth-largest fine in a cartel case.

Air France-KLM SA received the largest fine with €340 million, including the three different airlines that are now part of the group—Air France, KLM and Netherlands-based Martinair.

British Airways PLC was fined €104 million.

Many countries around the world, from South Africa to New Zealand, have been investigating issues related to price fixing in air cargo. In the U.S., total fines of more than $1.6 billion were levied against airlines that acknowledged fixing fuel surcharges, and eighteen airlines have been charged.

According to the commission, the European Union's antitrust body, the airlines colluded on some surcharges between December 1999 and February 2006, when the investigation—which initially targeted more than 20 companies—started with unannounced raids at the companies' headquarters.

Initially, "the carriers contacted each other so as to ensure that worldwide airfreight carriers imposed a flat rate surcharge per kilo for all shipments," the commission said in a statement. "The cartel members extended their cooperation by introducing a security surcharge and refusing to pay a commission on surcharges to their clients," it said.

Other airlines fined include Singapore Airlines Ltd., fined €74.8 million, Qantas Airways Ltd. with €8.8 million, Cathay Pacific Airways Ltd., with €57.1 million and Japan Airlines International Co., fined €35.7 million.

The EU also fined Scandinavian airline SAS AB €70.2 million, LAN Chile €8.2 million, Luxembourg-based Cargolux €79.9 million and Air Canada €21 million.

Deutsche Lufthansa AG wasn't fined because it acted as a whistle-blower in the case, the commission said.

The commission can fine the companies up to 10% of their annual global revenue. The EU didn't fine any U.S. company because it didn't find enough evidence to do so, European Competition Commissioner Joaquín Almunia said during a press conference to announce the decision.

Some companies, including British Airways and Cargolux, have been putting money aside because of the prospect of a fine. British Airways said Tuesday that the fine falls within its provision. The company said in May 2007 that it had provisioned £350 million ($654.6 million) for fines in the U.S. and EU, while Air France-KLM provisioned €530 million for fines in different regions.

Air France-KLM said it will appeal the decision. "The Air France-KLM group considers that the level of the fines is disproportionate given the fact that the economic analysis produced within the context of the procedure demonstrated that the actions in question had no detrimental effect on the freight shippers nor the freight forwarders. Moreover, the level of the fines disregards the economic hardship that the air cargo industry has suffered, and will have a distortive effect on the level playing field," the company said in a statement.

Air France-KLM noted that its fines exceed the level of provisions it has already taken against anti-trust litigation, obliging it to book an unexpected €127 million charge to its earnings for the first six months of its financial year that ends March 31, 2011. Air France-KLM will release its first-half results on Nov. 17.

SAS, which didn't make any provision, said Tuesday that it will appeal the commission's decision, calling the fines disproportionate, while Cargolux said the fines seems "a very harsh punishment indeed," when added to others due to other antitrust authorities.