Leading the News
U.S., EU Probe Airlines for Price-Fixing on Cargo --- Raids at Carrier Facilities Reflect New Coordination In Trans-Atlantic Cases
By Daniel Michaels and John R. Wilke
744 words
15 February 2006
The Wall Street Journal
A3
English
(Copyright (c) 2006, Dow Jones & Company, Inc.)

Several major air-cargo carriers were raided by U.S. and European antitrust enforcers as part of a trans-Atlantic investigation into possible price-fixing and collusion in air cargo, officials said.

Federal Bureau of Investigation agents raided British Airways facilities at New York's Kennedy Airport yesterday morning, confiscating computers and gathering documents, one official said; similar searches of airlines' facilities took place in Chicago, Miami, San Francisco and Long Beach, Calif. The European Commission conducted its own raids at the same time, saying it had carried out "unannounced inspections" of airline facilities and offices in Europe.

A spokeswoman for the U.S. Justice Department said the antitrust division was coordinating with the European Union and "investigating the possibility of anticompetitive practices in the air-cargo industry."

Although neither authority specified which carriers are under investigation, British Airways, freight carrier Cargolux Airlines International of Luxembourg and units of Air France-KLM said they had been asked for information related to alleged anticompetitive activities, though they declined to comment further. German airline Lufthansa said it was cooperating with authorities.

In the U.S., AMR Corp. said its American Airlines cargo division received a subpoena from U.S. antitrust officials, though it said it wasn't told it was a target of the investigation and hadn't received a search warrant. UAL Corp., parent of United Airlines, said officials visited its cargo office in Frankfurt, though it didn't discuss further details. Atlas Air Worldwide Holdings Inc. said its Polar Air Cargo unit received a formal request for information from U.S. officials. The three said they would cooperate.

Japan Airlines said that its offices in Frankfurt and New York were searched and that it will cooperate.

None of the airlines have been accused of wrongdoing.

According to a statement by Scandinavian Airlines Systems, which said its offices were raided, European officials are investigating whether airlines have cooperated illegally on routes both within Europe and outside the EU since 2000. The statement didn't specify any airlines. SAS said the practices under investigation involved agreements regarding certain surcharges to offset external cost increases.

These include fuel surcharges, security measures after the Sept. 11, 2001, terrorist attacks in the U.S. and the increased cost of war-risk insurance following the start of military action in Iraq in 2003, SAS said. The airline added, however, that it sees no reason to suspect any violations of antitrust laws.

EU regulators said the raids were just the beginning of an investigation and don't mean that the companies raided will be found guilty or fined.

It remains unclear by what mechanism the airlines may have illegally cooperated. Since the global airline crisis that followed the Sept. 11, 2001, terrorist attacks, carriers have sought to pass increased costs along to customers. In the price-sensitive passenger-airline market, this has been difficult, although many carriers -- especially outside the U.S. -- have imposed passenger fuel surcharges.

Cargo shippers, which use both dedicated cargo airlines and cargo space in the bellies of passenger planes, have routinely paid fuel surcharges, even before Sept. 11, 2001. Cargo shippers have passed that cost, normally set as a fee per ton of cargo, along to their customers.

The European Commission can penalize companies as much as 10% of their annual global sales if they find evidence of price-fixing and faces no strict deadline to complete a cartel investigation. In the U.S., price-fixing is a criminal offense carrying stiff fines and possible jail sentences for executives.

European regulators have stepped up cooperation with the Justice Department in recent years, resulting in a rise in global-cartel cases. Under what are known as leniency rules, a cartel participant who blows the whistle and agrees to provide evidence against the others can receive immunity. It isn't clear if one of the airlines involved in the investigation acted as a whistle-blower.

In 2002, the EU changed its policy to mirror U.S. law. A lack of trans-Atlantic coordination had discouraged international cartel participants from self-reporting illegal activity for fear that a confession in one jurisdiction could lead to legal jeopardy in another, U.S. and EU antitrust officials have said.

---

Mary Jacoby, Adam Cohen and Corey Dade contributed to this article.

Document J000000020060215e22f00048