KEY POINTS:
Air NZ has come out swinging at charges it was part of a $2.9 billion price fixing cartel that jacked up air cargo charges for New Zealand's exporters and importers, accusing the Commmerce Commission of 'grandstanding'.
The commission announced this morning that action in the High Court would begin against 13 airlines and seven airline staff, including senior executives, for "extensive and long-term cartel activity in the air cargo market."
It says that airlines throughout the world colluded to raise the price of freighting cargo by imposing fuel surcharges for more than nine years.
A fine "in the tens of millions of dollars" will be sought by the commission from the airlines.
At a press conference in Auckland, commission chair Paula Rebstock said the probe had been triggered by one of the airlines taking advantage of its "leniency" policy, where a cartel member can inform on the others in exchange for immunity.
She would not name which airline had originally come forward, but did say that both Qantas and British Airways had been co-operating with the commission for more than a year.
The executives are not being named by the commission, since there is a possibility they may get name suppression when they make their first appearance in court, likely to be next month.
The price-fixing had caused "extensive harm to the New Zealand economy" and New Zealand consumers, said Rebstock.
She said it was difficult to estimate how much the cartel had cost New Zealand consumers but overseas evidence showed that cartels drive prices up by 10 to 20 per cent.
Rebstock said the Commission had been working on the case since 2005 and at the time, it was the largest case looked into by the Commission. She said since then another investigation has been launched which is even larger but she would not elaborate.
Air New Zealand general counsel John Blair, in a press release response issued this afternoon, said the airline had cooperated fully with the commission, providing hundreds of thousands of documents and making current and former employees available for interview from around the world.
Despite all this work, the airline had been unable to identify any evidence of price-fixing or cartel behaviour.
He then attacked the commission itself, saying that despite repeated requests, it had failed to present it with any evidence it had breached any law.
"To have the Commerce Commission announce today that it will embark on proceedings against 13 airlines, having failed to engage with us for almost three years, is clearly an approach designed to justify their existence and seems more about grandstanding than about getting to the bottom of the allegations and facilitating a co-operative approach from the airlines," said Blair.
He said Air NZ had invested several million dollars over the past three years, analysing over a million documents and spoken to many current and former employees.
"The Commerce Commission's disdain for engagement has made this exercise many times more expensive than it needed to be. Whilst we have not had access to any of the documents or allegations of wrongdoing from the Commerce Commission, we expect to vigorously defend the proceedings, which we understand relate to four former and one current cargo division employee."
In June four international airlines - Air France/KLM, Cathay Pacific, SAS Cargo and Martinair agreed to pay the US Justice Department more than half a billion dollars in fines for its part in the air cargo cartel in one of the largest antitrust settlements in US history.
Associate 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 per cent.
Earlier, British Airways, Korean Air, Qantas and Japan Airlines filed similar agreements as part of the investigation.
In all, airlines have now agreed to pay more than $1.2 billion in fines.
Air NZ has said it has made no provision for any fine or penalty that may be levied as part of the global cartel investigations.
Just last week Qantas was ordered to pay $24.6 million by the Federal Court of Australia for breaching the price-fixing provisions of the Australian Trade Practices Act.
Rebstock said the Commission would be looking at the Australian figure and working with their counterparts in Australia.
The NZ Commerce Commission says the cartel started in 1999, under the auspices of the trade organisation International Air Transport Association (IATA). The airlines imposed the fuel surcharges between 2000 and 2006. The allegations also involve a series of regional price fixing agreements.
In addition, the commission says a number of airlines conspired to price fix through the imposition of a security surcharge immediately following the 9/11 terrorist attacks.
Qantas spokesman Simon Rushton said once the company's board learned that it may have breached competition laws, it told management to fully cooperate with regulators, including the Commerce Commission.
"In the last two-and-half-years, we have actively assisted the Commission with its investigations of Qantas and other airlines and we are hopeful of reaching an appropriate settlement with the Commission," Rushton said in a written statement.
The airlines the Commerce Commission is filing proceedings against are:
* Air New Zealand
* British Airways
* Cargolux International Airlines
* Cathay Pacific
* Emirates
* Garuda
* Japan Airlines International
* Korean Airlines
* Malaysian Airlines
* Qantas
* Singapore Airlines
* Thai Airways
* United Airlines
Rebstock said some airlines are cooperating with the Commission and an early resolution may be possible in some cases.
Airlines earn more than an estimated $400 million each year transporting air cargo to and from New Zealand, and over the nine years this agreement was in place the total revenue was approximately $2.9 billion, said Rebstock.
"The alleged collusion to impose additional charges will have caused extensive harm to the New Zealand economy. New Zealand is a long way from its overseas markets and so the harm to our economy and our ability to compete internationally will have been disproportionately greater than in other jurisdictions in which the conduct took place," she said.
"Many New Zealand businesses and every consumer will have been directly affected by the increased air freight costs over many years. It will have resulted in increased costs for exporters and importers and higher overall prices for many consumer goods."
"Anti-cartel enforcement activity is a priority for the commission," said Rebstock. "Participation in cartel activity is internationally regarded as one of the most egregious forms of anti-competitive behaviour. It results in consumers and businesses paying higher prices and having less choice than if competitors were competing honestly. "
Rebstock said cartels had grown on a worldwide basis and often operated at a global level. Importantly, cartels undermined New Zealand's international competitiveness, she said.
"Cartels are insidious, they are difficult to detect and extremely difficult to investigate because of their secretive and international nature."
- EDWARD GAY/HERALD ONLINE
