"U.S. fines 2 foreign airlines $300 million"

Friday, August 24, 2007

ACCUSED OF CONSPIRACY TO FIX FUEL SURCHARGES
U.S. fines 2 airlines $300 million
British, Korean firms plead guilty; 11 others are under investigation
BY GOPAL RATNAM
Bloomberg News


British Airways and Korean Air Lines were each fined $300 million in a U.S.
court Thursday after admitting they reached secret agreements with
competitors in setting fuel surcharges.

Both companies cooperated with investigators and escaped penalties that
could have been two to three times higher, U.S. District Judge John Bates
said in Washington hearings.

The guilty pleas end the first criminal prosecutions arising from a
multinational antitrust investigation of the air transportation industry.
European and U.S. regulators are examining at least 11 other companies
including American Airlines, Air France-KLM Group and Japan Airlines for
possible price fixing.

"We wonder what is yet to come from larger carriers in the cargo industry,"
Chris Avery, a JPMorgan analyst in London, said in an e-mail. "British
Airways has made provisions which it thinks are adequate" to pay the fines.

British Airways, Europe's third-largest airline, set aside 350 million
pounds ($701 million) on May 18 to settle "all known claims in relation to
these matters." This included civil claims in the U.S., the airline said.

Both airlines pleaded guilty to two criminal counts of conspiracy in setting
extra charges on passenger and cargo flights to help offset rising fuel
costs.

"Both counts involve considerable commerce and reflect long-term, widespread
conduct that involves several major airlines," Bates said in court. "These
are very serious charges."

British Airways' fuel surcharge on round-trip passenger flights between the
U.S. and the U.K. rose to $110 per ticket in 2006, from $10 in 2004, the
U.S. Justice Department said Aug. 1.

British Airways could have been fined as much as $894 million, while Korean
Air faced a possible fine of as much as $633 million, Bates said. The
Justice Department's antitrust division recommended the lower penalties
after plea negotiations, saying the carriers aided the investigation.

"Any anti-competitive behavior is to be condemned at British Airways or at
other companies," British Airways Chief Executive Officer Willie Walsh said
in a statement after the hearing. "It will not be tolerated and we remain
vigilant in this respect."

British Airways, based in London, was accused of fixing prices on air cargo
as early as March 2002 and on passenger flights starting in August 2004.
Seoul-based Korean Air was charged with fixing cargo and passenger prices
starting in January 2000.

Virgin Atlantic Airways disclosed the passenger fare price-fixing with
British Airways, while Deutsche Lufthansa AG, Europe's second-biggest
airline, reported participating in cargo price-setting with British Airways
and Korean Air, the Justice Department said in announcing the plea
agreements Aug. 1.

Virgin Atlantic and Lufthansa must make restitution to U.S. victims, but
won't face charges, the Justice Department said.

At least 11 other carriers have said they were asked for information or are
under investigation by U.S. and European authorities. In addition to
American Airlines parent AMR Corp., Air France-KLM and Japan Airlines, they
are SAS Group, United Parcel Service Inc., Singapore Airlines Ltd., Cathay
Pacific Airways Ltd., UAL Corp.'s United Airlines, Chile's LAN Airlines SA,
Cargolux Airlines International SA and Atlas Air Worldwide Holdings Inc.'s
Polar Air Cargo.

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