News that Panasonic Avionics, along with its corporate parent, has agreed to make payments to settle US federal allegations of corruption comes just months after it settled other allegations levied by business partner CoKinetic.

Among other complaints, CoKinetic alleged that Panasonic Avionics had deliberately degraded performance of in-flight entertainment (IFE) hardware owned by Emirates Airline, Delta Air Lines, United Airlines and Virgin America, court papers show.

CoKinetic sued Panasonic Avionics in March 2017 and reached a confidential settlement in January.

Panasonic Avionics tells FlightGlobal: "The CoKinetic lawsuit is completely unrelated to the SEC [Securities and Exchange Commission] and DOJ [Department of Justice] investigations. It was a contractual dispute between two business entities that has since been settled."

It was about three months after the CoKinetic settlement that Lake Forest, California-based Panasonic Avionics – a unit of Japan-based Panasonic Corporation – settled with the US government.

Panasonic Avionics announced on 30 April that it would pay $281 million to settle allegations that it had violated the Foreign Corrupt Practices Act and committed accounting fraud. The payments include $137 million to settle criminal charges brought against Panasonic Avionics by the DOJ, as well as $143 million to settle allegations levied at Panasonic Corporation by the SEC.

The DOJ had charged Panasonic Avionics with one count of "knowingly and willfully causing the falsification of books, records and accounts of its parent company Panasonic", it said.

Under a deferred prosecution agreement Panasonic Avionics reached with the DOJ, the government will not prosecute the company if it complies with the agreement's terms. The deal calls an "independent compliance monitor" to oversee the company for two years, after which Panasonic Avionics must self-report information to the DOJ for one year.

Panasonic Avionics must also co-operate with "any ongoing investigation", and take steps to make current and former employees available to speak to investigators, the agreement says.

The fine is 20% less than the "low end" of fine guidelines because Panasonic Avionics co-operated with the investigation, the DOJ notes.

Panasonic Avionics points out that its remedial actions also included "installing a new executive management team", including a new chief executive, chief operating officer, chief financial officer and chief compliance officer.

"This is an ongoing effort and the company will continue to strengthen its compliance programmes and internal controls," chief executive Hideo Nakano – who replaced Paul Margis in the role in February 2017 – states in the 30 April 2018 media release. "With these investigations behind us, we are confident that Panasonic Avionics is well positioned for long-term success under our new management team."

The SEC and the DOJ had alleged that Panasonic Avionics made improper payments to government officials and airline consultants in a bid to win lucrative IFE contracts.

The DOJ's lawsuit, filed in the US District Court for the District of Columbia, says several unnamed Panasonic Avionics top executives participated in the alleged scheme.

Those include "Executive 1", who allegedly approved payments to consultants via a "service provider". Some of those funds came from Panasonic Avionics' "office of the president budget" fund, according to court papers.

"Executive 1" worked at Panasonic Avionics since at least 2005, became an "executive officer" at parent Panasonic Corporation on 1 April 2013 and left the company in 2017, court papers say.

The government specifically alleges that Panasonic Avionics, while seeking an IFE contract with an unnamed Middle Eastern airline, offered to hire as a consultant a "foreign official" who worked for that airline as a "contracting manager".

That official, the DOJ claims, helped work "on aspects" of the IFE deal, "including drafting the contract language". Panasonic Avionics closed the deal with the airline on 12 November 2007, and it earned $353 million in revenue from the deal through 2015, DOJ says.

The unnamed airline employee resigned from the carrier in February 2008 and formally became a Panasonic Avionics consultant in April 2008. That person earned $875,000 from Panasonic Avionics between 2008 and 2014 despite doing "minimal work", the government's suit says.

The US government also alleged that Panasonic Avionics paid a consultant who, at the same time, consulted to one of Panasonic Avionics' largest US airline customers.

That person provided Panasonic Avionics with nonpublic information, including internal communications between the airline's employees, says the DOJ. Those communications addressed Panasonic Avionics and the airline's negotiations with a competing IFE provider, including details about the competitor's prices, the suit alleges.


In March 2017, IFE software and services provider CoKinetic, which also has offices in Lake Forest, sued Panasonic Avionics, alleging that the company had violated agreements and attempted to monopolise the IFE market.

CoKinetic did not respond to a request for comment.

In its filing with the US District Court for the Southern District of New York, CoKinetic said it had developed IFE software called AirPlay which Virgin America in 2004 licensed to use on Panasonic Avionics IFE hardware.

Panasonic Avionics later became a licensed seller of AirPlay. Other airline customers included Air New Zealand, Emirates and United; CoKinetic also signed a deal with Delta, court papers say.

CoKinetic's suit alleged that Panasonic Avionics actually aimed to push it out of the market by, among other means, purposefully degrading customers' IFE systems.

"Panasonic has routinely engaged in patently unlawful… practices by deliberately degrading and damaging IFE hardware systems owned by Panasonic's own airline customers," CoKinetic's suit said.

CoKinetic argued that Panasonic Avionics' goal had been "to create the appearance that only Panasonic is able to provide reliable software services on Panasonic IFE hardware, thus destroying competition and forcing airlines to purchase inferior products sold at monopolistic prices".

The suit also alleged "eavesdropping" on confidential CoKinetic meetings with Emirates staff.

Its focus is on deals with Delta, Emirates and Virgin America, now owned by Alaska Air Group.

Delta and Alaska declined requests from FlightGlobal to comment. FlightGlobal contacted Emirates twice, but that company did not provide comment.

Panasonic Avionics responded to the suit in a 6 April 2017 letter to the court.

The letter says CoKinetic failed to prove violations of anti-trust laws and notes that the alleged actions would have damaged Panasonic Avionics' position in a highly competitive market.

"CoKinetic alleges nothing suggesting that [Panasonic Avionics] had an incentive to exclude a supplier of desirable complementary software, let alone why such conduct could harm competition," says the letter to the court. "Doing so would only condemn [Panasonic Avionics'] hardware customers to allegedly inferior software, causing [Panasonic Avionics] to lose hardware sales to Thales and other hardware rivals in continuous competition."

The disagreement is a "garden-variety private dispute" and CoKinetic sued because it was "disenchanted with the relationship", the letter adds.

That letter noted Panasonic Avionics' intent to file a request for the case to be dismissed.

CoKinetic notified the court in an 11 January letter that the dispute with Panasonic Avionics had been settled.

Source: Cirium Dashboard