Qantas's guilty plea puts pressure on other airlines in the air cargo price-fixing probe

Criminal proceedings, launched by US and European competition authorities nearly two years ago, are reaching a critical phase. Airlines under investigation must decide quickly whether they should try to negotiate a plea to limit their potential criminal liability.

Qantas is the third airline to make such a deal. It agreed with the US Justice Department at the end of November to plead guilty to charges that it conspired with others starting in 2000 to fix cargo charges on transpacific flights over a six-year period. During that period Qantas was the largest cargo carrier between the US and Australia, earning more than $600 million from these operations.

Price-fixing timeline

February 2006

The US Department of Justice and the European Commission begin probes into suspected price-fixing activity by air cargo carriers

August 2006

Lufthansa offers $85 million to settle class action claims (civil lawsuits) relating to the cargo price-fixing case in the USA and accepted into DoJ's leniency programme

September 2007

BA fined $200 million and Korean Air fined $100 million in the USA by the DoJ for their parts in the air cargo affair

November 2007

Qantas fined $61 million by DoJ

How is the price-fixing probe affecting how cargo executives do business? 

This Qantas deal follows the first plea bargains last August by British Airways and Korean Air, which confessed to claims of wider-spread violations and ­incurred fines from US and UK authorities of almost $1 billion.

The Qantas fine, by contrast, is only $61 million, partly because of its candour in admitting error promptly after its own internal audit. Equally important, Qantas probably obtained a "co-operation discount" for agreeing to assist investigators and provide evidence, if necessary, against other airlines.

Competition laws encourage such deals. Virgin Atlantic and Lufthansa, for example, obtained amnesty from criminal liability by being the first to step forward with evidence that blew the whistle on their price-fixing cargo partners.

Avoiding sanctions

In "Making the Decision: What to do when Faced with International Cartel Exposure", the American Bar Association antitrust section describes the snowball dynamics of early co-operation. "The only way to avoid or mitigate the severe sanctions for cartel conduct is through self-reporting or early co-operation," it says. "The difference in sanctions between the self-reporting company and the next company to co-operate (number two) is typically enormous. The differences between the number two company and the number three company are also typically very sizeable."

The report stresses that the difference could be between a fine for the first or second company and going to jail for the third or fourth. Says Seattle-based antitrust lawyer Mark Hough: "The early settlers in the airline cases get some big benefits. If you are too late and your co-operating testimony is no longer needed, you are in deep trouble."

Airlines targeted in criminal probes face a dilemma. Civil damage actions inevitably follow a criminal case. Class actions by shippers seeking millions are already pending in the USA and Australia. Pleading guilty in a criminal case confers no immunity in these cases. In fact the guilty plea is usually proof in the civil case of an antitrust violation.

Thus, airlines considering an early criminal plea face a trade-off between trying to limit criminal penalties and increased civil exposure. Lawyers may differ on this, but US-based David Berger adds: "As a plaintiffs antitrust lawyer, my instinct would be to hit harder at a defendant who opted to fight to the bitter end, as opposed to confessing its error and trying to make amends."

But not all are ready to bargain just yet. Air France-KLM chairman Jean-Cyril Spinetta says it is "in discussions with European and US antitrust authorities", but "has not received any grievance letter from either authority".

The issue of whether to take a provision for a potential cargo fine has been debated by the Air France-KLM audit committee, but it decided against such action for the time being as it does not have enough to go on. But ABN AMRO analyst Andrew Lobbenberg warns that fines could be on the way: "We see Air France-KLM at risk of a significant fine and consequent civil actions related to cargo fuel surcharges."



Source: Airline Business