Tuesday, July 1, 2008

THAI Airways could face fine up to $300m for price fixing

Cargo price fixing hits major world carriers


Thai Airways International is prepared to plead guilty to a charge of cargo price fixing and pay fines of up to US$300 million in the European Union to settle the case.

The national carrier confirmed its position after the US Justice Department announced last Thursday that four international airlines including Air France-KLM had agreed to pay $504 million in fines in the US to settle charges they conspired to drive up cargo prices.

THAI is not defending itself against the charges but insists that it was neither the airline's policy nor intention to commit a crime. It is asking for leniency from the European Commission on possible fines of up to $300 million.

''We could accept that kind of fine and the payment should not have a significant impact on THAI,'' THAI president Apinan Sumanaseni said yesterday.

THAI is among 30 airlines under investigation around the world, including in the US, the EU and Australia, for conspiracy to fix surcharges on air cargo shipments in one of the world's biggest cartel probes. Criminal prosecutions of individuals are also under way.

Thursday's announcement marked the latest in a series of settlements over the last two years. Earlier, British Airways, Korean Air, Qantas and Japan Airlines filed similar agreements as part of the investigation.

To date, the US Department of Justice has imposed fines of more than $1.2 billion in the cases. The European Commission has taken a tough stance on antitrust violations and last year imposed 3.3 billion in fines _ the most it has imposed in a single year.

THAI has sought assistance from the Foreign Ministry in its dealings with the EC. Its local law firm, Siam Premier, will work with European advisers on the case. Mr Apinan expects the case will be closed by December or January.

Air cargo users have complained for years about surcharges that airlines were applying, prompting investigations by antitrust regulators.

In 2006, regulators in the EU, Asia and the United States raided the offices of major airlines. THAI's offices in Zurich and Frankfurt were raided by EU investigators who found documents and e-mails that may indicate collusion.

Associate US Attorney General Kevin O'Connor called the scam an ''international price-fixing cartel'' that cost consumers hundreds of millions of dollars between 2001 and 2006. In some instances, for example, fuel surcharges rose by 1,000%.

Authorities said executives from each of the airlines met repeatedly in the United States, Europe and Asia to devise a scheme that raised cargo rates, fuel surcharges and security costs for businesses and, ultimately, consumers.

The cartel focused on goods shipped to and from the US, including electronics, clothing, produce and medicines, according to Mr O'Connor.

THAI's fine is expected to be in the same range as those levied on other offenders _ $350 million for Air France under the terms of the plea agreement announced Thursday which is still subject to court approval. British Airways and Korean Air each paid $300 million last year to the US Justice Department.

Aviation industry analysts said the fines would hit THAI hard, especially at a time when the the global airline industry is flying into a severe slump triggered by skyrocketing oil prices and slowing traffic demand.

THAI's net profit in the first quarter of this year fell 48% year-on-year to 2.22 billion baht as its fuel bills jumped 45.4% to 19.56 billion baht.

Areepong Bhoocha-oom, the State Enterprise Policy Office director-general, said the Finance Ministry, as the major shareholder of THAI, was monitoring the EU investigation.

He said any final settlement would ultimately be reported to Finance Minister Surapong Suebwonglee.

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