Air Carriers Agree To $87 Million Settlement On Price Fixing Scheme

 

NEWSROOM
 
 
  Bookmark and Share
 
 
 
 

Air Carriers Agree To $87 Million Settlement On Price Fixing Scheme

By
Mike Mitchell
 
 

July 14, 2010 - Hundreds of air cargo freight forwarders joined in a civil antitrust class action lawsuit against Air France, KLM and Martinair for their involvement in price fixing of air cargo shipped to and from the United States between 2000 and 2006.

On Tuesday all three companies agreed to pay an out of court settlement of $87 million to those freight forwarders affected by the price fixing scheme.   

This settlement must be approved by the court before any money can be returned back to these freight forwarders. In a letter the companies stated that indirect buyers that used an intermediary to ship their goods would be barred from such claims. 

 

“This is an important settlement,” Michael Hausfeld, a lawyer for the freight shippers, said in a statement on Tuesday. “We now look forward to seeking appropriate redress for the indirect shippers, who also suffered substantial unlawful overcharges as a result of the cartel.” 

Antitrust regulators worldwide have been investigating over a dozen air carriers of price fixing since 2006 and as a result have fined several companies. In 2008, Air France, Cathay Pacific Airways, KLM, Martinair and SAS Cargo Group had agreed to each plead guilty and pay criminal fines totaling $504 million for participating in a multi–year conspiracy to fix prices for air cargo rates in the U.S. 

Of the $504 million in fines, Air France-KLM, which now operates under common ownership by a single holding company, has agreed to pay a $350 million criminal fine, the second highest fine ever levied in a criminal antitrust prosecution. 

According to the charges filed in the U.S. District Court for the District of Columbia, the airlines each engaged in a conspiracy to suppress and eliminate competition by fixing the cargo rates charged to customers for international air shipments. The charged conduct affected billions of dollars of consumer and other goods–including produce, clothing, electronics and medicines–shipped by these airlines and their competitors in the air cargo industry.

Air France is a corporation organized and existing under the laws of France, and KLM is a corporation organized and existing under the laws of the Netherlands. At the start of the charged conspiracy period until May 2004, Air France and KLM Royal Dutch Airlines were operating as two separate, independent companies. Beginning in May 2004 and continuing through the remainder of the conspiracy period, the companies were under common ownership by a single holding company and began to integrate cargo operations outside of the United States. 

Cathay is a corporation organized and existing under the laws of the Hong Kong Special Administrative Region of the People’s Republic of China (the HKSAR) with its principal place of business in the HKSAR.  

Martinair is a corporation organized and existing under the laws of the Netherlands with its principal place of business in Amsterdam, Netherlands, was involved in price fixing from at least as early as late September 2001 and continuing until at least Feb. 14, 2006. 

SAS, a subsidiary of SAS AB, is a corporation organized and existing under the laws of Denmark with its principal place of business in Copenhagen, Denmark, was involved in price fixing from at least as early as late February 2002 and continuing until at least Feb. 14, 2006.  

The above companies participated in meetings, conversations and communications in the United States and elsewhere to discuss the cargo rates to be charged on certain trans-Atlantic routes to and from the United States. 

“The air cargo conspirators artificially raised the prices paid to ship billions of dollars of goods,” said Scott D. Hammond, Deputy Assistant Attorney General in charge of Criminal Enforcement for the Department’s Antitrust Division. “When these companies and their coconspirators got together and agreed to raise prices for air cargo shipments, American businesses and consumers ended up picking up the tab.” 

On Aug. 23, 2007, British Airways Plc pleaded guilty and was sentenced to pay a $300 million criminal fine for conspiring to fix cargo rates for international air shipments, including to and from the United States, and to fix passenger fuel surcharges for long-haul international air transportation, including between the United States and United Kingdom. The same day, Korean Air Lines pleaded guilty and was sentenced to pay a $300 million criminal fine for conspiring to fix cargo rates charged to customers in the United States and elsewhere for international air shipments and to fix wholesale and passenger fares for flights from the United States to Korea. 

On Jan.14, 2008, Qantas Airways Limited pleaded guilty and was sentenced to pay a $61 million criminal fine for its role in a conspiracy to fix cargo rates to customers in the United States and elsewhere for international air shipments. On May 7, 2008, Japan Airlines pleaded guilty and was sentenced to pay a $110 million criminal fine for conspiring to fix rates for international cargo shipments. On May 15, 2008, Bruce McCaffrey, Qantas’ former highest-ranking executive employed in the United States, pleaded guilty to fixing cargo rates to customers in the United States and elsewhere for international air shipments, and agreed to serve eight months in jail, and to pay a criminal fine. 

On June 26, 2009 in Canada, the Competition Bureau announced that international air carriers Air France, KLM and Martinair pleaded guilty and were fined a total of $10 million for their part in an air cargo cartel affecting Canada. 

The carriers admitted to fixing surcharges on air cargo exported on certain routes from Canada between April 2002 and February 2006. In particular, the companies admitted to communicating with competitors about the amount and timing of fuel surcharges. The Bureau estimates that the three companies imposed air cargo surcharges totaling approximately $31.5 million during the period of the conspiracy. 

"The cooperation of these parties through the Bureau’s leniency program will assist in our ongoing conspiracy investigation," said Melanie L. Aitken, Interim Commissioner of Competition. "Had these companies not cooperated, the Bureau would have recommended harsher penalties against these companies, including significantly higher fines." 

Air France, KLM, and Martinair were convicted in Canada’s Federal Court of violating section 45 of the Competition Act, which makes any agreement between competitors to fix prices that result in an undue lessening of competition in Canada a criminal offence. Current available penalties for price-fixing include fines of up to $10 million per party, imprisonment to a maximum term of five years, or both. The fines imposed on the companies were as follow, Air France $4 million, KLM $5 million and Martinair $1 million.

This investigation was commenced following a confidential immunity application. Under the Bureau’s Immunity Program, the first party to disclose to the Bureau an offence not yet detected, or to provide evidence leading to the filing of charges, may receive immunity from the Director of Public Prosecutions, provided the party fully cooperates with the Bureau. 

The carrier that approached the Bureau early in its investigation of criminal activities was also able to benefit from leniency, such as reduced penalties, in return for their cooperation. Obtaining the cooperation of implicated parties through the Bureau’s Immunity and Leniency Programs is one of the Bureau’s best weapons to combat these secret criminal anti-competitive agreements. 

In February 2009 a Federal Court in Sydney Australia orders Air France, KLM Airlines, Martinair and Cargolux International Airlines to pay a total of $16 million in penalties for price fixing. Air France and KLM admitted to making and giving effect to illegal price fixing understandings with Lufthansa, repeatedly exchanging assurances with Lufthansa in the implementation of fuel surcharge increases for international carriage of air cargo across their global networks. 

Martinair admitted that by no later than early 2003, it had arrived and gave effect to illegal price fixing understandings with KLM and Cargolux that they would have discussions and exchange and confirm information with each other in relation to the application of fuel surcharges on cargo carried internationally by air across their respective global networks. 

Cargolux admitted to making and giving effect to illegal price fixing understandings with each of Lufthansa, Air France and KLM that each of them would impose a fuel surcharge on cargo carried internationally by air across their networks, (except where local conditions in a particular port or in a particular geographic area prevented the imposition, or full imposition, of the fuel surcharge).

 

Other News Stories

 
 
Home Aviation News Aviation Stories Of Interest FAA Exam Upcoming Events Links To Other Sites General Aviation Helicopters Medical Factors Facing Pilots
Maintenance and Aircraft Mechanics Hot Air Balloon Aviation Training Handbooks Read Online Aviation History Legal Issues In Aviation Sea Planes Editorials
 
 ©AvStop Online Magazine                                                                 Contact Us                                                  Return To News                                          Bookmark and Share
 

 

AvStop Aviation News and Resource Online Magazine

Grab this Headline Animator