Air NZ settles US cartel case - pays out $52m

Photo / NZ Herald

Air New Zealand has agreed to settle a cargo cartel case in the United States for NZ$52 million.

The airline said it settled rather than take the risk of a potentially "very material commercial liability" by continuing to defend its position.

"This is purely a question of mitigating an unacceptable risk created by the US class action system which creates enormous pressure to settle such matters commercially.

There was no credible evidence that any Air New Zealand employee participated in any conspiracy, but the potential for an unexpected verdict was not an acceptable commercial risk for the airline," said John Blair, Air New Zealand's general counsel.

The case dates back to 2006, when a civil compensation claim was filed on behalf of several freight forwarders naming a significant number of global airlines, including Air New Zealand, for alleged conspiracy involving air cargo fuel and security surcharges between 2000 and 2006.

In 2011, Air New Zealand having successfully defended its position with the US Department of Justice, was released from their criminal investigation.

But after ten years of arguing the validity of the civil compensation lawsuit in US courts, Air New Zealand elected to pursue settlement with the plaintiffs. The settlement, reached through mediation efforts, was agreed last Friday.

The settlement is subject to approval by the court in New York.

Despite settlement, Air New Zealand has not admitted to being part of the alleged conspiracy, the airline said in a statement to the NZX.

Under US law, every participant in a conspiracy is liable for the harm caused by the entire conspiracy regardless of the extent of their participation. When a conspiracy involves "anti-trust" (anti-competitive) conduct, the entire damages are trebled. The settlement amount of US$35 million represents 2.8 per cent of the US$1.223 billion paid in settlements by 28 airlines.

Air New Zealand is one of the last airlines to settle and one of the few airlines involved in the action to have been investigated by the US Department of Justice and not subsequently prosecuted.

Air New Zealand's outlook for the financial year 2016, which targeted earnings before taxes and equity earnings from the Virgin Australia shareholding to exceed $800 million, does not incorporate the impact of the settlement from the US class action compensation claim on 2016 earnings.

The outlook was provided by Air New Zealand on February 25, before an estimate or likelihood of a settlement could be ascertained.