Air France-KLM, BA Among Airlines Fined $1.1 Billion by EU
Air France-KLM Group and British Airways Plc were among 11 carriers fined a total of 799.4 million euros ($1.1 billion) by European Union regulators for coordinating air-cargo fuel and security surcharges.
Air France and its units got the biggest penalty of 339.6 million euros and British Airways was fined 104 million euros, the European Commission said yesterday. Air France-KLM, Europe’s largest airline, and British Airways are recovering from record losses in 2009 when the financial crisis ravaged sales.
Airlines “are much more financially sound now than they were a year and a half ago,” said Jacob Pedersen, an analyst with Sydbank A/S in Aabenraa, Denmark. “They must be satisfied this happened now and not back then because that would have been far worse.”
The EU fines come three years after regulators sent complaints to 26 airlines, following coordinated antitrust raids worldwide that led to jail terms for some executives, fines and settlements. U.S. authorities have fined 18 airlines at least $1.6 billion and filed criminal charges against 14 executives for price-fixing.
“It is deplorable that so many major airlines coordinated their pricing,” EU Competition Commissioner Joaquin Almunia said. Extra security costs in the aftermath of the attacks on Sept. 11, 2001, also weren’t “an acceptable reason to stop competing,” Almunia told reporters in Brussels yesterday.
SAS Group AB got a 70.2 million-euro penalty and Cargolux Airlines International SA, Europe’s third-biggest air-freight carrier, was fined 79.9 million euros, the commission said.
The global airline industry has lost money in seven of the past nine years, racking up losses of more than $50 billion, according to the International Air Transport Association.
The EU can’t fine companies more than 10 percent of the previous year’s sales. That rule forced it to reduce fines for two of the carriers. It didn’t identify those airlines.
Air France-KLM Group said it would appeal a combined fine that puts its total payout over the provision it set aside to cover the cartel probes.
From 530 million euros set aside as a provision in 2008, Air France-KLM had already paid out almost 330 million euros in fines and class-action awards in the U.S., Canada and Australia, spokeswoman Brigitte Barrand said in a telephone interview.
British Airways said in an e-mailed statement its fine was “within the provision made by the company in its 2006/7 report and accounts.”
The British Airways penalty is “manageable” and will have a “modest” impact on the company’s cash balance, which was 1.857 billion pounds on Oct. 29, said Douglas McNeill, an analyst at Charles Stanley Group in London.
SAS, owner of Scandinavia’s biggest airline, said it will appeal its fine.
“SAS believes that it has not been involved in a global cartel and that therefore, the fines are disproportionate,” it said in a statement to the Stockholm stock exchange yesterday.
The company posted its fourth consecutive quarterly loss today after recording the fine. It had a 1.05 billion kronor ($156 billion) loss in the third quarter. The carrier has been unprofitable in all but one of the past 12 quarters as it struggled with declining traffic, strikes and a volcanic eruption this year in Iceland.
Deutsche Lufthansa AG, Europe’s second-largest airline, wasn’t fined because it was the first to inform on the cartel, the EU’s antitrust agency said.
Airlines received reductions in the fines for cooperating with officials, Almunia said. Regulators refused to grant larger reductions to five companies that claimed the penalties could force them into bankruptcy. The EU executive didn’t name those five carriers.
Singapore Airlines Ltd. must pay 74.8 million euros. Air Canada was charged 21 million euros, Chile’s Lan Airlines SA was fined 8.2 million euros, Japan Airlines Corp. has a fine of 35.7 million euros and Qantas Airways Ltd. got an 8.9 million euros penalty.
Cathay Pacific Airways Ltd., which was fined 57 million euros, is reviewing its options with lawyers, the Hong Kong- based carrier said in a statement today.
Singapore Airlines said in an e-mailed statement that it is disappointed in the decision and “strongly contests” that it was involved in fixing prices. The carrier also said it was likely to appeal and that it would set aside 134 million Singapore dollars ($108 million) for the fine.
Qantas ‘Improper Conduct’
Qantas, Australia’s largest airline, “acknowledged the improper conduct” by its freight unit during the period and will consider the fine when the full decision is received next week, the carrier said in an e-mailed statement. In 2008, the Sydney-based company was fined A$20 million ($20.1 million) by Australia’s antitrust regulator for its role in the cartel.
Air Canada said in an e-mailed statement that the fine amount is “more than adequately covered by the $125 million provision taken by the company in 2008.” It said it hasn’t made a decision on a possible appeal.
Lan, Latin America’s largest carrier by market value, plans to appeal, according to a statement posted on the website of Chile’s securities regulator.
Japan Airlines set aside 6.2 billion yen ($76 million) in 2007 for a possible penalty and the fine won’t affect its on- going re-organization in bankruptcy protection, said Sze Hunn Yap, a spokeswoman for the Tokyo-based carrier. The airline will review the ruling before responding further, she said.
Not Enough Evidence
Almunia said regulators “didn’t find evidence enough” to fine other companies it investigated, including AMR Corp.’s American Airlines, United Airlines, Korean Air Lines Co., Nippon Cargo Airlines Co., Alitalia SpA, Air New Zealand Ltd., Malaysia Airline System Bhd. and South African Airways.
The airlines still face other payment claims including a case brought by freight customers for damages against Air France-KLM in the Dutch courts.
“It is basic justice that customers harmed by cartel behavior should obtain redress for the harm,” Almunia said.
Cargo airlines often work together to carry freight, setting aside as much as 10 percent of space for partners. Carriers’ price structures include surcharges that change depending on oil prices and security measures.