Competition Compliance in Air Freight

Moderated by:Carlos Tornero, Senior Legal Counsel, IATA

Panel:Leslie Lugo, Senior Legal Counsel, IATA

Thomas Mueller, Partner, Co‐Chair, Antitrust and Competition Practice Group, Wilmer Hale

Mark Rosman, Former Assistant Chief of National Criminal Enforcement, Antitrust Division, US Department of Justice

Competition Compliance inAir Freight

CNS Partnership Conference

May 2011

Antitrust goes global…

• Over 100 countries have adopted competition law regimes, many with stiff criminal penalties.

• Vigorous public and private antitrust enforcement continues unabated and will likely increase further in the years ahead.

• The launch of the International Competition Network (“ICN”) assures a greater level of cooperation among antitrust enforcement authorities world-wide.

Not a very Happy Valentines Day…• 14 February 2006: Simultaneous, coordinated “dawn

raids” by competition authorities on three continents:

– EU– UK– US– Canada– Switzerland – South Korea

Vague public statements after raids…

• US DOJ spokesman acknowledged “industry-wide”investigation focusing on “the possibility of anticompetitive practices in the air cargo industry.”

• EC press release stated “[t]he Commission has reason to believe that the companies concerned may have violated [the EU] treaty, which prohibits practices such as price fixing.”

Airlines “raided”

• BA (LHR and JFK)• Air France/KLM (CDG)• JAL (FRA)• Korean Air (South Korea)• Asiana (South Korea)• Cathay Pacific (FRA, LAX, SFO)• United (FRA)• SAS (Stockholm)• Many more airlines subpoenaed/investigated

Was there an IATA angle…?• IATA Cargo Tariff Conference (CTC) Resolution 116ss

provided for a fuel surcharge mechanism triggered by reference to an IATA Fuel Price Index.

• Although adopted by a unanimous vote of the CTC, in March 2000 the US DOT “disapproved” Resolution 116ss.

• On 7 April 2000, IATA informed CTC Members of the US DOT's rejection of the Resolution:

“As previously advised, Resolution 116ss has not received the requisite government approvals and will not be declared effective.”

• Nonetheless, many airlines coordinated their fuel surcharge levels:“[the airlines were] aware that the US [DOT] had comprehensively rejected [Resolution 116ss] as anticompetitive [and] were specifically warned by IATA that if [they] coordinated pricing by reference to a common index, they were at serious risk of violating antitrust laws.”

Australian Court Order

US:  Record Fines and Jail Sentences• 21 airlines charged so far by the US DOJ Antitrust

Division and airlines have paid more than $1.8 billion (largest industry-wide fines in US history)

• 21 executives have been indicted or entered guilty pleas • More than a dozen other individuals still face charges,

most foreign nationals• Interpol “red notices” being used at international borders

to arrest individuals with possibility of extradition to the US.

• Interpol “red notices” being used at international borders to arrest individuals with possibility of extradition to the US.

• The guilty pleas send a “clear message that those who engage in price fixing and other forms of illegal collusion will pay a heavy price for their crimes. The shipment of consumer products by air transportation is critical to our economy . . . and we will aggressively pursue those who engage in criminal conduct that harms American consumers.”

Thomas O. BarnettAsst. Attorney General, US DOJ

EU:  It could have been worse…• 11 airlines fined a total of €799 million (4th largest

industry-wide fines imposed in the EU) • Allegations of collusion against 11 other airlines

“dropped for insufficient evidence”• Fines ranged from €313 million against AF/KLM to €8.8

against Qantas

EU:  Cartel enforcement’s top cop?

• “It is deplorable that so many major airlines coordinated their pricing to the detriment of European consumers. With today's decision the Commission is sending a clear message that it will not tolerate cartel behavior.”

Joaquin AlmuniaEU Competition Commissioner 9 November 2010

What about IATA…?

• No Legal Action Taken Against IATA

– US Grand Jury Subpoena voluntarily withdrawn– IATA was removed as a named defendant in the

consolidated Class Action Complaint in the US – IATA cooperated with antitrust enforcement agencies

around the world throughout the investigations

Airlines:  Where are they now…?• Fines so far have totaled $3 billion . . . and counting • Government investigations continue in the US, EU,

Canada, Australia, South Korea, New Zealand, Indonesia, and many other jurisdictions

The Aftermath:  Compliance is key…

• Qantas: “Qantas apologies unreservedly for the conduct of the employees involved. All Qantas employees are expected to comply with the law and we take any failure to comply very seriously.”

Geoff Dixon, CEO

• Air France: The Company “is committed to compliance with all laws, including [antitrust] laws. We have taken thorough steps across the organization to prevent a recurrence, as Air France is committed to the highest standards of corporate governance.”

Jean-Cyril Spinetta, CEO

• Cathay Pacific: “Cathay Pacific is committed to its long-standing policy of full compliance with the law. I am satisfied that we have taken the best possible corrective actions to remain consistent with this policy . . . [and have] established a dedicated Competition Compliance Office to ensure that the Company's procedures and policies continue to comply with the antitrust and competition laws around the world.”

Tony Tyler, CEO

• British Airways: “Any anti-competitive behavior is to be condemned at British Airways or at other companies. It will not be tolerated and we remain vigilant in this respect.”

Willie Walsh, CEO