United may avoid fines in EU cargo case

AMR Corp.'s American Airlines and UAL Corp.'s United Airlines are among about a dozen carriers that may escape price-fixing fines as the European Union scales back a probe into air cargo rates, two people familiar with the case said.

The European Commission issued complaints to 26 airlines in December 2007 following what regulators said were the largest coordinated antitrust raids. The penalties may now be limited to airlines such as Air France-KLM Group and SAS Group, which cooperated with the EU and sought a cut in fines, said the people, who declined to be identified because the draft decision isn't public.

The EU case has been whittled back in the face of a lobbying campaign by airlines arguing they shouldn't be fined for fixing prices on routes that fly out of the 27-nation bloc, the people said. Related investigations in the U.S., South Korea and Australia have led to more than $1.6 billion in fines.

"This is a difficult case," Christian Steinle, a partner at Gleiss Lutz in Stuttgart, Germany, said in an interview. "The commission may be accused of discriminating against European airlines by being stricter with them compared to third country airlines -- so this could become a political issue."

The carriers have also argued that the EU can't levy fines on some airlines because governments outside the bloc require sharing cargo rates, the people said. Hong Kong told the commission last month that fines against Asian airlines such as Cathay Pacific Airways Ltd. and Singapore Airlines Ltd. would conflict with the city state's rules.

Decision Delayed

The investigation is one of the last under the current commission, whose five-year terms ends this month. Officials had sought to rule on the case at the commission's final meeting on Oct. 28, the people said.

A new commission will take office in January. A ruling could still be made during the two-month "caretaker" commission in November and December, Steinle said.

Some companies want the regulator to rule next year so the fines will be based on 2008 sales when airlines suffered from declining revenue, the people said. A final ruling on penalties may change if the decision is delayed until a new competition commissioner takes office, the people said.

"The commission doesn't want to say that it's lowering the fines because companies are on the brink, so calculating the fines on 2009 sales would take them out of that problem," said Michael Tscherny, a former commission spokesman who is now a consultant at GPlus Europe in Brussels.

Other Airlines

Other airlines that may be fined include Air Canada, British Airways Plc, Cathay Pacific Airways Ltd., Chile's Lan Airlines SA, Japan Airlines Corp., Qantas Airways Ltd., Singapore and SAS, the owner of Scandinavian Airlines, two people said.

"There is indeed a likelihood that SAS will be fined," said Claus Sonberg, a spokesman for Stockholm-based SAS. "When it comes to the amount of the fine that will be impacted by a number of factors. But taking into account the nature of the allegation, an adverse outcome is likely to have a substantially negative outcome for SAS."

Cathay Pacific still hasn't been notified about any results yet, said spokesman Thomas Lau. Singapore Airlines spokesman Nicholas Ionides declined to comment.

Air France-KLM, Lufthansa, Air Canada, LAN, Lufthansa and Tokyo-based Japan Airlines and Sydney-based Qantas declined to immediately comment.

"We're waiting for a ruling from the EU," a spokesman at British Airways said in a telephone interview.

Deutsche Lufthansa AG was the first airline to alert the commission of the alleged conspiracy and won't be fined under the EU's leniency program. Carriers that will avoid penalties include Nippon Cargo Airlines Co., Alitalia SpA, Air New Zealand Ltd. and South African Airways, the people said.

Working Together

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 reasons such as oil prices and security measures.

Under EU rules, companies can be fined 10 percent of annual sales for antitrust violations. The commission typically opts for a penalty of about 2 percent to 3 percent of sales in cartel cases. Companies may appeal fines to EU courts.

The investigation involves European and inter-continental routes, with alleged illegal cooperation "supposedly" dating back to 2000, SAS said in 2006.

SAS said at the time that the probe centered on "agreements regarding certain surcharges to offset external cost increases, such as fuel surcharges, costs for additional security measures after the attack in the U.S. in September 2001 and surcharges for war-risk insurance premiums applied in conjunction with the outbreak of war in Iraq in 2003."